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

• Citation: 611 B.R. 51
• Decision Date: 31 December 2019
• Docket Number: Bankruptcy No. 14-12482-MDC,Adversary No. 14-00255-MDC
• Parties: IN RE: PHILADELPHIA ENTERTAINMENT AND DEVELOPMENT PARTNERS, L.P., Debtor. Philadelphia Entertainment and Development Partners, LP d/b/a Foxwoods Casino Philadelphia, 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

611 B.R. 51

IN RE: PHILADELPHIA ENTERTAINMENT AND DEVELOPMENT PARTNERS, L.P., Debtor.Philadelphia Entertainment and Development Partners, LP d/b/a Foxwoods Casino Philadelphia, 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 DECEMBER 31, 2019

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

Richard A. Barkasy, Bruce P. Merenstein, Schnader Harrison Segal & Lewis LLP, Jon Theodore Pearson, Ballard Spahr LLP, Daniel Michael Pereira, Stradley Ronon Stevens & Young, LLP, Vincent J. Marriott, III, Albert S. Dandridge, Philadelphia, PA, for Defendants

OPINION

Magdeline D. Coleman, Chief U.S. Bankruptcy Judge

I. INTRODUCTION

On April 8, 2016, this Court entered an Opinion and Order that, inter alia , granted the Defendants'¹ Motion to Dismiss Adversary Complaint or, in the Alternative, Abstain (the "Motion to Dismiss")² and dismissed Counts II, III, and IV of the Complaint, which are the Plaintiff's³ claims against the Defendants under §§ 544, 548, and 550 of the Bankruptcy Code⁴ and the Pennsylvania Uniform Fraudulent Transfer Act (the "PUFTA")⁵ (collectively, the "Fraudulent Transfer Claims"), on the grounds that the Rooker-Feldman doctrine divested this Court of jurisdiction to decide them. See Philadelphia Entertainment & Development Partners, LP v. Dept. of Revenue (In re Philadelphia Entertainment & Development Partners, LP) , 549 B.R. 103 (Bankr. E.D. Pa. 2016) (" Philadelphia Entertainment I "). That dismissal was affirmed by the United States District Court for the Eastern District of Pennsylvania (the "District Court") but reversed by the United States Court of Appeals for the Third Circuit (the "Circuit Court"). See Philadelphia Entertainment & Development Partners, LP v. Dept. of Revenue (In re Philadelphia Entertainment & Development Partners, LP) , 879 F.3d 492 (3d Cir. 2018) (the " Circuit Court Opinion "). The Circuit Court concluded that the Rooker-Feldman doctrine does not bar this Court from adjudicating the Fraudulent Transfer Claims, because in doing so, this Court does not need to review or reject the 2011 judgment of the Commonwealth Court of Pennsylvania (the "Commonwealth Court") denying the Debtor's appeal of the revocation of its slot machine license (the "License") by the Pennsylvania Gaming Control Board (the "Gaming Control Board").

The Circuit Court instructed that, on remand, the District Court, or alternatively this Court, address (i) whether claim or issue preclusion bars judicial review of the Plaintiff's claim that revocation of the License was a constructively fraudulent transfer under §§ 548(a)(1)(B) and 544 of the Bankruptcy Code and the PUFTA; and if not, (ii) whether the Plaintiff has stated a claim that the revocation of the License was a constructively fraudulent transfer under §§ 548(a)(1)(B) and 544(b) of the Bankruptcy Code and the PUFTA; and (iii) whether the sovereign immunity granted to States by the Eleventh Amendment bars judicial review of the Plaintiff's claim that revocation of the License was a constructively fraudulent transfer under §§ 548(a)(1)(B) and 544(b) and the PUFTA (collectively, the "Issues on Remand"). On April 19, 2018, the District Court entered an order remanding the case to this Court for resolution of the Issues on Remand. On August 16, 2018, the District Court returned the record to this Court to allow such resolution to proceed.

For the reasons set forth herein, the Court finds that (1) the Plaintiff's Fraudulent Transfer Claims are not barred by claim or issue preclusion; (2) the Plaintiff's Fraudulent Transfer Claims are barred by sovereign immunity, and (3) even if sovereign immunity were inapplicable to the Fraudulent Transfer Claims, the Plaintiff has failed to state a claim against the Defendants under §§ 548(a)(1)(B), 544, and 550 of the Bankruptcy Code and the PUFTA because the License did not constitute the property or an asset of the Debtor under applicable Pennsylvania state law.

II. POST REMAND FACTUAL AND PROCEDURAL BACKGROUND ⁶

On August 28, 2018, the Court issued an Order⁷ scheduling a status hearing on the issues to be addressed following remand for September 21, 2018 (the "Status Hearing"). At the Status Hearing, the Court ordered the Parties, in light of the Circuit Court Opinion , to submit supplemental briefs in support of their respective positions regarding the Issues on Remand (the "Briefs on Remand"). The Parties submitted the Briefs on remand as ordered.⁸

On November 20, 2018, the Court held oral argument (the "Hearing") on the Issues on Remand. At the Hearing and in their Brief on Remand, the Defendants argued that (a) the Fraudulent Transfer Claims should be dismissed because they are barred by the Defendants' sovereign immunity, (b) the Fraudulent Transfer Claims should be dismissed for failure to state a claim because the Debtor did not have a property interest in the License, and therefore the Plaintiff could not meet a threshold element of the Fraudulent Transfer Claims, and (c) the Fraudulent Transfer Claims are barred by the doctrine of claim preclusion.⁹ In its Brief on Remand and the Hearing, the Plaintiff argued that the Fraudulent Transfer Claims should not be dismissed because (a) under United States Supreme Court precedent, fraudulent transfer actions are excepted from the Defendants' sovereign immunity, (b) the doctrines of claim preclusion and issue preclusion do not bar the Fraudulent Transfer Claims, and (c) the Fraudulent Transfer Claims state a claim for which relief can be granted against the Defendants because the Transfer at issue occurred within the statutory look-back period, constituted a transfer of an interest in the Debtor's property, and was made without the Debtor receiving reasonably equivalent value.

At the Hearing, the Parties also made arguments not previously made or briefed. The Parties argued for the first-time regarding application of Pennsylvania's Statutory Construction Act of 1972 (the "Statutory Construction Act")¹⁰ to the issue of whether the License constituted the property or an asset of the Debtor for purposes of fraudulent transfer law. The Court thereafter directed the Parties to submit supplemental briefs on their respective positions regarding that issue (the "Supplemental Briefs"), which the Parties submitted on December 20, 2019.¹¹ In their Supplemental Brief, the Defendants argued that the application of the Statutory Construction Act confirms that the License did not constitute property or an asset of the Debtor for purposes of the Fraudulent Transfer Claims because the plain language of the Gaming Act confirms the Pennsylvania legislature's intent that the License was only a revocable privilege, and any conflicting language in the PUFTA does not supersede the clear intent of the Gaming Act. In its Supplemental Brief, the Plaintiff argued that the application of the Statutory Construction Act confirms the License was property of the Debtor because the language of the PUFTA, rather than the Gaming Act, is clear that government-issued licenses are property for purposes of that statute, even if not considered property for other purposes. The Plaintiff argued there is no conflict between the Gaming Act and the PUFTA as to whether the License was the Debtor's property because the Gaming Act is limited in scope to the process for obtaining a gaming license, but to the extent there is a conflict, the PUFTA's provisions should prevail because it is a statute special in nature dealing specifically with fraudulent transfers.

III. DISCUSSION

A. Clarification of the Transfer Sought to Be Avoided

In Count II of the Complaint, Plaintiff asserted that the Defendants are liable for a fraudulent transfer pursuant to § 548(a)(1)(B) of the Bankruptcy Code because the "revocation of the License" was a transfer for which the Debtor received no value, and defined revocation as "the Transfer." Complaint at ¶97. The Plaintiff further alleged that "the Debtor is entitled to a judgment avoiding and preserving the Transfer." Complaint at ¶104. Likewise, in Count III of the Complaint, the Plaintiff asserted that the Defendants are liable for the Transfer under § 544(b) of the Bankruptcy Code and the PUFTA. Complaint at ¶¶105-110. In Count IV of the Complaint, the Plaintiff sought both to avoid the Transfer and a directive that the full value of the Transfer, in the amount of $50,000,000, be turned over to the Plaintiff. Complaint at ¶¶111-114.¹²

In Philadelphia Entertainment I , this Court observed that notwithstanding the plain language of the Complaint's allegations that the Plaintiff sought to avoid revocation of the Debtor's license as a fraudulent transfer, the Plaintiff contended that it was not seeking to avoid revocation of the license, but rather was seeking to avoid the transfer of the license without a refund of the $50,000,000 the Debtor paid for it. This Court also observed that the Defendants argued the transfer at issue was when the Debtor paid the $50,000,000 license fee, not when the license was revoked or when no refund was issued. Thus, as the Circuit Court noted, this Court identified three possible transfers: the payment of the license fee, the loss of the license, and the Defendants' failure to refund the license fee.

In its appellate briefing before the Circuit Court, the Plaintiff clarified its theory of the transfer for which it asserts the Defendants are liable. The Circuit Court, citing the Plaintiff's appellate brief, instructed that the operative transfer for which the Plaintiff seeks relief is the loss of the license, i.e. the revocation of the license.¹³ The Plaintiff has now confirmed that for this Court.¹⁴ As such, this Court, with the much-needed clarification that the transfer the Plaintiff seeks to avoid is the revocation of the...