Phila. Entm't & Dev. Partners, L.P. v. Commonwealth (In re Phila. Entm't & Dev. Partners, L.P.)

• Citation: 549 B.R. 103
• Decision Date: 08 April 2016
• Docket Number: ADVERSARY NO. 14–00255–MDC,BANKRUPTCY NO. 14–12482–MDC
• Parties: In re: Philadelphia Entertainment and Development Partners, L.P., Debtor. Philadelphia Entertainment and Development Partners, L.P., Plaintiff, v. Commonwealth of Pennsylvania Department of Revenue, et al., Defendants.
• Court: United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Eastern District of Pennsylvania

549 B.R. 103

In re: Philadelphia Entertainment and Development Partners, L.P., Debtor.

Philadelphia Entertainment and Development Partners, L.P., Plaintiff,
v.
Commonwealth of Pennsylvania Department of Revenue, et al., Defendants.

BANKRUPTCY NO. 14–12482–MDC
ADVERSARY NO. 14–00255–MDC

United States Bankruptcy Court, E.D. Pennsylvania.

Signed April 8, 2016

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Kenneth E. Aaron, Weir & Partners LLP, Philadelphia, PA, Stuart M. Brown, Wilmington, DE, for Debtor.

Ared D. Bayer, Stephen A. Cozen, Frederic Warren Jacoby, Cozen O'Connor, Jennifer M. McHugh, Philadelphia, PA, for Plaintiff.

Vincent J. Marriott, III, Ballard Spahr Andrews & Ingersoll, Jon Theodore Pearson, Ballard Spahr LLP, Philadelphia, PA, for Defendants.

OPINION

MAGDELINE D. COLEMAN, UNITED STATES BANKRUPTCY JUDGE

INTRODUCTION

On May 29, 2014, Philadelphia Entertainment and Development Partners, L.P. (the "Debtor") filed a seven-count complaint against the Commonwealth of Pennsylvania, Department of Revenue and the Commonwealth of Pennsylvania (together, the "Commonwealth Parties") seeking, among other things, to recover for the benefit of the Debtor's creditors (1) a fee in the amount of $50,000,000 (the "License Fee") paid to the Pennsylvania Gaming Control Board (the "Gaming Board") for a Category 2 slot machine license ("License"), and (2) the value of the License which was revoked pre-petition by the Gaming Board.¹

In response, the Commonwealth Parties filed on August 28, 2014, a Motion to Dismiss, or In the Alternative Abstain (the "Motion") contending that dismissal of the entirety of the Complaint is warranted based on various grounds, including that (i) this Court lacks jurisdiction to adjudicate the Trustee's claims as a result of sovereign immunity; (ii) the Trustee's claims are barred by the Rooker –Feldman Doctrine; and (iii) the Trustee failed to state a basis for the relief sought. As alternative relief, the Commonwealth Parties request that this Court abstain from adjudicating the Trustee's claims. The Commonwealth Parties contend that abstention is warranted by either the principles of permissive abstention codified by 28 U.S.C. § 1334(c)(1) or the Burford Abstention Doctrine.²

The Trustee opposes dismissal of the Complaint contending that (1) the Commonwealth Parties are not immune from suit; (2) the Rooker –Feldman Doctrine is inapplicable; (3) issue and claim preclusion do not bar the Trustee from seeking relief;

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(4) permissive abstention is inappropriate as the recovery of the License Fee is of central importance to the administration of the Debtor's estate; (5) the Burford Abstention Doctrine is inapplicable because the recovery of the License Fee does not implicate Pennsylvania's regulation of gaming; and (6) each count of the seven counts set forth by the Complaint state a plausible claim for relief.

As set forth below, after reviewing the parties' pleadings and consideration of their arguments, the Court will:

1. Grant the Motion with regard to Count I (turnover pursuant to § 542) because the Trustee failed to state plausible claims for relief and the insufficiencies may not be cured by further amendment.

2. Grant the Motion with regard to Counts II (fraudulent conveyance under § 548), III (fraudulent conveyance under § 544), and IV (recovery of the value of the license under § 550) of the Complaint (collectively with Count I, the "Bankruptcy Claims") because application of the Rooker –Feldman Doctrine divests this Court of subject matter jurisdiction to consider the avoidance of the revocation of the License. To the extent that the fraudulent conveyance actions implicate some transfer other than the revocation of the License,³ this Court has also determined that the Trustee failed to state plausible claims for relief and the insufficiencies may not be cured by further amendment.

3. Grant the Motion with regard to Counts V (taking without payment of just compensation), VI (unjust enrichment), and VII (promissory estoppel) (the "State Law Claims"), because the Commonwealth Parties' sovereign immunity defense deprives this Court of subject matter jurisdiction to hear the Trustee's non-bankruptcy causes of action.

4. Refrain from addressing the Commonwealth Parties' request for alternative relief based upon permissive abstention pursuant to 28 U.S.C. § 1334(c)(1), or under the Burford Doctrine. The Court has addressed the merits of the Commonwealth's sovereign immunity defense and the sufficiency of the Trustee's causes of action rendering consideration of this request unnecessary.

PROCEDURAL HISTORY

The Bankruptcy Case

On March 31, 2014 (the "Petition Date"), the Debtor invoked this Court's jurisdiction by filing a voluntary petition for Chapter 11 relief together with a pre-packaged plan of reorganization. Significantly, the Debtor did not list the Commonwealth Parties among its creditors or solicit their approval of the Plan. The Commonwealth Parties have not (1) filed a claim against the Debtor; (2) filed any request for relief in the Debtor's bankruptcy case; or (3) participated in the Debtor's bankruptcy case in any manner whatsoever except as defendants in this adversary proceeding.

On July 28, 2014, this Court entered the Confirmation Order confirming the First Modified Chapter 11 Plan of Liquidation of Philadelphia Entertainment and Development Partners, L.P. filed by the Debtor on May 27, 2014 [Docket No. 88] (the

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"Plan").⁴ In addition to contemplating the sale of certain real property, the Plan calls for the creation of a liquidation trust (the "Liquidation Trust") to collect all assets of the Debtor for the benefit of the Debtor's creditors.

The Adversary Action

As characterized by the Trustee and contemplated by the Plan, the only significant asset to be administered by the Liquidation Trust consists of the Debtor's alleged interest in the License and the License Fee. The Debtor initiated this adversary proceeding by filing the Complaint dated May 29, 2014 (the "Complaint"). In the Complaint, the Debtor asserts seven causes of action in support of its claim that it is entitled to a payment from the Commonwealth Parties in the amount of $50,000,000 due to the Commonwealth's failure to refund the License Fee to the Debtor. The Debtor, and now the Trustee, seeks (1) Turnover of the License Fee pursuant to § 542; (2) Avoidance of the Revocation of the License as a Fraudulent Transfer as provided by § 548(a)(1)(B); (3) Avoidance of the Revocation of the License as a Fraudulent Transfer as provided by § 544(b) and 12 Pa.C.S.A. § 5101, et seq. ; (4) Recovery of the value of the Revoked License pursuant to §§ 550 and 551; (5) the Revocation of the License Constitutes a Taking without Payment of Just Compensation; (6) Retention of the License Fee Caused an Unjust Enrichment; and (7) Promissory Estoppel resulting from the reservations contained in a letter dated October 16, 2007 (the "October 16 Letter"),⁵ prevents the Commonwealth Parties from retaining the License Fee.

The claims against the Commonwealth Parties may be boiled down to the Debtor's, and now the Trustee's, belief that the revocation of the License was unlawful because revocation was not accompanied by a refund of the License Fee. See, e.g., Transcript November 14, 2014, 67:4–5 ("our claim is predicated upon the failure to return the license fee."). Based upon this belief, the Trustee asserts that the Debtor's estate is entitled to judgment against the Commonwealth Parties in an amount equal to the License Fee.⁶

In response to the Complaint, the Commonwealth Parties filed the Motion. In the Motion, the Commonwealth Parties argue that dismissal is warranted pursuant to Fed. R. Civ.P. 12(b)(1) and 12(b)(6).⁷ Addressing this Court's jurisdiction to hear the matters asserted by the Complaint, the Commonwealth Parties argue (1) application of sovereign immunity renders the Commonwealth Parties immune from suit; (2) application of the Rooker –Feldman Doctrine divests this Court of subject matter jurisdiction; (3) substantial public policy concerns, including principles of comity, warrant permissive abstention pursuant to 28 U.S.C. § 1334(c)(1) ; and (4) application of the Burford Abstention Doctrine prevents this Court from interfering

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in Pennsylvania's efforts to regulate the gaming industry.

Addressing the merits of the claims asserted by the Complaint, the Commonwealth Parties make the following arguments: (1) the Trustee's § 542 cause of action should be dismissed because the License Fee and/or the License is not the acknowledged property of the Debtor's estate; (2) applicable statutes of limitations require the dismissal of the Trustee's fraudulent conveyance causes of action; (3) the lawful prepetition expiration of the Debtor's rights do not constitute a transfer within the meaning of either § 544(b) or § 548; (4) the Debtor has not identified a creditor holding an unsecured claim who has standing to assert a cause of action pursuant to § 544(b); (5) the Debtor has failed...