Park Restoration, LLC v. Erie Ins. Exch. (In re Trs. of Conneaut Lake Park, Inc.)

• Decision Date: 02 May 2017
• Docket Number: No. 16-2516,16-2516
• Citation: 855 F.3d 519
• Parties: IN RE: the TRUSTEES OF CONNEAUT LAKE PARK, INC., Debtor Park Restoration, LLC v. Erie Insurance Exchange; The Trustees of Conneaut Lake Park, a charitable trust; Crawford County, a political subdivision; Summit Township, a municipal corporation; Tax Claim Bureau of Crawford County; Conneaut School District Summit Township, a municipal corporation; Crawford County, a political subdivision; The Tax Claim Bureau of Crawford County; The Conneaut School District, Appellants
• Court: U.S. Court of Appeals — Third Circuit

855 F.3d 519

IN RE: the TRUSTEES OF CONNEAUT LAKE PARK, INC., DebtorPark Restoration, LLC

v. Erie Insurance Exchange; The Trustees of Conneaut Lake Park, a charitable trust; Crawford County, a political subdivision; Summit Township, a municipal corporation; Tax Claim Bureau of Crawford County; Conneaut School DistrictSummit Township, a municipal corporation; Crawford County, a political subdivision; The Tax Claim Bureau of Crawford County; The Conneaut School District, Appellants

No. 16-2516

United States Court of Appeals, Third Circuit.

Argued January 18, 2017

Opinion Filed: May 2, 2017

John F. Mizner [Argued], Mizner Law Firm, 311 West Sixth Street, Erie, PA 16507, Counsel for Appellee

Lawrence C. Bolla, Michael P. Kruszewski, Arthur D. Martinucci [Argued], Quinn Buseck Leemhuis Toohey & Kroto, 2222 West Grandview Boulevard, Erie, PA 16506, Counsel for Appellants

Before: FISHER^* , HARDIMAN, and GREENAWAY, JR., Circuit Judges.

OPINION OF THE COURT

HARDIMAN, Circuit Judge.

Pennsylvania law prohibits insurance companies from paying fire insurance proceeds to a "named insured" unless the local municipality certifies that no delinquent taxes are owed on the property where the insured structure was located. 40 Pa. Stat. § 638. The District Court held that "named insured" as used in Section 638 includes only those who own the structure at issue and are responsible for the delinquent taxes. Because the Bankruptcy Court rightly held that this interpretation contravenes the text of the statute, we will reverse.

I

This appeal involves Conneaut Lake Park, which abuts Conneaut Lake in Crawford County, Pennsylvania. The Park included a historic venue known as the Beach Club, which was owned by the Trustees of Conneaut Lake Park, Inc. Appellant Park Restoration, LLC, operated the Beach Club under a management agreement with the Trustees. Park Restoration insured the Beach Club against fire loss for $611,000 through Erie Insurance Exchange. When the Beach Club was destroyed by fire in 2013, Park Restoration submitted a claim to Erie. Erie did not dispute the claim, but in accordance with 40 Pa. Stat § 638, it required Park Restoration to obtain a certificate from the local municipal treasurer stating whether back taxes were owed on the property.

Park Restoration received a certificate showing a total of $478,260.75 in delinquent property taxes owed by the Trustees to Summit Township, Crawford County, the Tax Claim Bureau of Crawford County, and Conneaut School District (collectively, Taxing Authorities). These delinquent taxes dated back to 1996, well before Park Restoration signed its management agreement with the Trustees, and the taxes were owed on the entire 55.33 acre parcel on Conneaut Lake, not just the single acre that included the Beach Club. Nonetheless, because of the tax delinquency, Erie notified Park Restoration that it would transfer to the Taxing Authorities $478,260.75 of the $611,000 insurance proceeds. Park Restoration objected, prompting Erie to interplead the proceeds in the Court of Common Pleas of Crawford County.

The interpleader action was transferred to the United States Bankruptcy Court for the Western District of Pennsylvania after the Trustees filed for bankruptcy. In the Bankruptcy Court, Park Restoration argued that Section 638 "applies solely to those situations where the fee owner of the property is insured and where the tax liabilities at issue are the financial responsibility of the owner as well." In re Trustees of Conneaut Lake Park, Inc. , 543 B.R. 193, 198 (Bankr. W.D. Pa. 2015). Park Restoration argued that any other construction would violate the Takings Clauses of the United States Constitution and the Pennsylvania Constitution. The Trustees responded that Park Restoration was not entitled to any of the insurance proceeds because Park Restoration insured the Trustees' property. Therefore, the Trustees sought the remaining insurance proceeds after the Taxing Authorities were compensated.

The Taxing Authorities and Park Restoration filed cross motions for summary judgment. The Bankruptcy Court granted partial summary judgment in favor of both parties. It held that under Section 638 the Taxing Authorities were entitled to full payment of the delinquent taxes ($478,260.75), and that Park Restoration, as the named insured, was entitled to the balance of the insurance proceeds.

Park Restoration and the Trustees filed cross-appeals to the United States District Court for the Western District of Pennsylvania. Park Restoration argued, for the first time, that because the insured property constituted only 9% of the tax value of the parcel, Park Restoration's insurance proceeds should apply pro rata to the tax debt. It also argued that anything more would be an unconstitutional taking. Meanwhile, the Trustees claimed entitlement to the balance of the insurance proceeds because they owned the Beach Club.

The District Court affirmed the Bankruptcy Court's summary judgment for Park Restoration as against the Trustees, but reversed the Bankruptcy Court's summary judgment for the Taxing Authorities as against Park Restoration. The Court held that Section 638 is ambiguous because it uses "named insured" and "insured property owner" interchangeably. In re Trustees of Conneaut Lake Park, Inc. , 551 B.R. 577, 584–85 (W.D. Pa. 2016). The District Court then considered legislative intent and concluded that the General Assembly intended Section 638 to apply only to property owners. The Court reasoned that because Park Restoration did not own the Beach Club or the parcel upon which it was located, it was not responsible for the Trustees' delinquent taxes. The Taxing Authorities appealed the District Court's judgment.

II

The Bankruptcy Court had jurisdiction under 28 U.S.C. §§ 157(b) and 1334(b). The District Court had appellate jurisdiction under 28 U.S.C. § 158(a). Our jurisdiction lies under 28 U.S.C. §§ 158(d) and 1291. "Because the District Court sat as an appellate court, reviewing an order of the Bankruptcy Court, our review of the District Court's determinations is plenary." In re Wettach , 811 F.3d 99, 104 (3d Cir. 2016) (quoting In re Bocchino , 794 F.3d 376, 379 (3d Cir. 2015) ).

III

The Taxing Authorities argue that the District Court erred in reversing the Bankruptcy Court's order granting them summary judgment. We agree. Section 638 required Erie to transfer funds from Park Restoration's insurance claim to the Taxing Authorities irrespective of Park Restoration's property interest in the Beach Club. Though Park Restoration's public policy and equitable arguments are not without force, they cannot vitiate the statutory language. Additionally, we agree with the Bankruptcy Court that Section 638 as applied in this case does not violate the Takings Clauses of the United States Constitution or the Pennsylvania Constitution.

A

Although Pennsylvania courts have not addressed the question presented in this appeal, we believe that the text of Section 638 compels reversal. "When ascertaining Pennsylvania law, the decisions of the Pennsylvania Supreme Court are the authoritative source."

Spence v. ESAB Grp., Inc. , 623 F.3d 212, 216 (3d Cir. 2010). Because the Pennsylvania Supreme Court has not ruled on this issue, "we must predict how it would rule." Id. (citing Covington v. Cont'l Gen. Tire, Inc. , 381 F.3d 216, 218 (3d Cir. 2004) ). When interpreting Pennsylvania law, we apply its rules of statutory interpretation. See 1 Pa. Cons. Stat. § 1921 (providing guidance for courts interpreting Pennsylvania statutes); see also United States v. Atiyeh , 402 F.3d 354, 369–71 (3d Cir. 2005) (applying Pennsylvania rules of statutory interpretation to construe a statute). Pennsylvania's General Assembly also provided that Section 638 "shall be liberally construed to accomplish its purpose." 40 Pa. Stat. § 638(k).

Section 638 is relatively straightforward and its application here proceeds in three steps. First, the statute prohibits insurance companies from "pay[ing] a claim of a named insured for fire damage to a structure located within the municipality," unless the insurance company is furnished with an appropriate certificate from the municipal treasurer. 40 Pa. Stat. § 638(a). Thus, Erie was prohibited from paying a claim to Park Restoration (the named insured) for fire damage to the Beach Club (the damaged structure) unless Erie was furnished with the appropriate certificate.

Second, there will be one of two types of certificates issued depending on whether delinquent taxes are owed on the property where the structure was located. When, as in this case, there is a tax delinquency, the municipal treasurer is required to issue "a certificate and bill showing the amount of delinquent taxes, assessments, penalties and user charges against the property as of the date specified in the request." 40 Pa. Stat. § 638(b)(1)(ii) (emphasis added). Here, the 55.33 acre tax parcel on Conneaut Lake had a tax delinquency of $478,260.75.

Finally, upon receipt of the certificate, Erie was required to "transfer to the treasurer an amount from the insurance proceeds necessary to pay the taxes." 40 Pa. Stat. § 638(b)(2)(ii).

As the Bankruptcy Court observed, the statute does not "qualify its terms by requiring that the named insured be the ‘owner’ of the structure destroyed by the fire. Nor does the statute limit the imposition of the tax claim against insurance proceeds payable to the entity primarily liable for the tax debt in question." Conneaut Lake Park, Inc. , 543 B.R. at 203. The tax claim is "levied against the insured property"—that is, it is "in rem in nature and runs with the real property." Id. (internal formatting and quotation marks omitted). So the Taxing Authorities' claim "attache[d] to any fire insurance proceeds payable to any named insured as opposed to being limited solely to the beneficial interests (if any) of the primarily liable taxpayer." Id.

Unlike the Bankruptcy Court, the District Court found the statute ambiguous. In...