Phila. Entm't & Dev. Partners, LP v. Pa. Dep't of Revenue (In re Phila. Entm't & Dev. Partners, LP)

• Decision Date: 11 January 2018
• Docket Number: No. 17-1954,17-1954
• Citation: 879 F.3d 492
• Parties: IN RE: PHILADELPHIA ENTERTAINMENT & DEVELOPMENT PARTNERS, LP d/b/a Foxwoods Casino Philadelphia, Debtor Philadelphia Entertainment & Development Partners, LP d/b/a Foxwoods Casino Philadelphia v. Commonwealth of Pennsylvania Department of Revenue; Commonwealth of Pennsylvania Persil Mangeur LLC, in its capacity as the trustee of the Liquidation Trust for the estate of debtor Philadelphia Entertainment & Development Partners, LP d/b/a Foxwoods Casino Philadelphia, Appellant
• Court: U.S. Court of Appeals — Third Circuit

879 F.3d 492

IN RE: PHILADELPHIA ENTERTAINMENT & DEVELOPMENT PARTNERS, LP d/b/a Foxwoods Casino Philadelphia, DebtorPhiladelphia Entertainment & Development Partners, LP d/b/a Foxwoods Casino Philadelphia

v. Commonwealth of Pennsylvania Department of Revenue; Commonwealth of PennsylvaniaPersil Mangeur LLC, in its capacity as the trustee of the Liquidation Trust for the estate of debtor Philadelphia Entertainment & Development Partners, LP d/b/a Foxwoods Casino Philadelphia, Appellant

No. 17-1954

United States Court of Appeals, Third Circuit.

Submitted under Third Circuit L.A.R. 34.1a December 12, 2017

Filed: January 11, 2018

Jared D. Bayer, Stephen A. Cozen, F. Warren Jacoby, Cozen O'Connor, 1650 Market Street, One Liberty Place, Suite 2800, Philadelphia, PA 19103, Jennifer M. McHugh, Cozen O'Connor, 200 Four Falls Corporate Center, P.O. Box 800, Suite 400, West Conshohocken, PA 19428, Attorneys for Appellant

Richard A. Barkasy, Albert S. Dandridge, III, Bruce P. Merenstein, Schnader Harrison Segal & Lewis, 1600 Market Street, Suite 3600, Philadelphia, PA 19103, Attorneys for Appellees

BEFORE: CHAGARES, RESTREPO, and GREENBERG, Circuit Judges

OPINION

GREENBERG, Circuit Judge.

I. INTRODUCTION

Persil Mangeur LLC, ("Persil"), the Trustee of the Liquidation Trust established in debtor Philadelphia Entertainment and Development Partners, LP's ("PEDP"), Chapter 11 plan, appeals from a District Court order affirming a Bankruptcy Court order dismissing PEDP's adversary complaint against the Commonwealth of Pennsylvania and the Commonwealth of Pennsylvania Department of Revenue (together "Commonwealth"). We trace this case to 2006 when the Pennsylvania Gaming Control Board (the "Board") awarded a slot machine license to PEDP, which paid a $50 million fee to the Commonwealth for the license. The Board, however, eventually revoked the license when PEDP failed to meet certain of its requirements for its maintenance. PEDP unsuccessfully appealed from the revocation order to the Pennsylvania Commonwealth Court, following which the Supreme Court of Pennsylvania denied PEDP's application to review that decision.

After the Pennsylvania courts upheld the revocation, thereby exhausting PEDP's remedies through state procedures to challenge the revocation, it filed a petition in bankruptcy. During the bankruptcy proceedings, it brought an adversary action against the Commonwealth alleging that the license revocation should be avoided because it was a fraudulent transfer under §§ 544 and 548 of the Bankruptcy Code and under Pennsylvania law. Citing the Rooker–Feldman doctrine, the Bankruptcy Court concluded that it lacked subject matter jurisdiction over the fraudulent transfer claims in light of the proceedings in the state courts which had upheld the revocation order. By that time Persil had been appointed Trustee, and it appealed to the District Court which affirmed the Bankruptcy Court order. Persil then appealed to this Court. We will reverse because the Bankruptcy Court erred when it held that the Rooker–Feldman doctrine barred its review of the fraudulent transfer claims. We are satisfied that in a review of those claims the Bankruptcy Court did not need to review or reject the Commonwealth Court's judgment. We, however, do not reach a conclusion on the question of whether any of PEDP's fraudulent transfer claims are meritorious, so our opinion should not be overread as we only address the Rooker–Feldman issue.

II. BACKGROUND

The Pennsylvania Horse Racing Development and Gaming Act (the "Gaming Act"), provides for slot machine gaming in Pennsylvania. 4 Pa. Cons. Stat. § 1102 (2010). The Gaming Act authorizes the Board to issue two slot machine licenses for standalone gaming facilities in Philadelphia. Id. § 1304(b). As a condition for being granted a license, an applicant must pay a one-time license fee of $50 million to the Commonwealth. Id. § 1209(a).

In December 2006, the Board awarded a slot machine license to PEDP. App'x 107 ¶ 14. PEDP paid the $50 million fee in October 2007, and the Board issued the license the next year. App'x 108 ¶¶ 19–22. The Board required PEDP to open its facility and commence operations by May 2009, but PEDP did not meet this deadline and has never opened the facility. App'x 109 ¶¶ 23–24. Nevertheless, the Board extended the deadline for opening the facility to May 2011, provided that PEDP satisfy nine conditions that the Board required it to meet at preset dates during the extension period, App'x 109–10 ¶¶ 25–29. These conditions included requirements that PEDP submit financial and architectural documents and development plans to the Board. App'x 110 ¶ 29. PEDP did not satisfy these conditions and unsuccessfully sought another extension to satisfy the requirements for the license. App'x 110–12 ¶¶ 30–41. In December 2010, the Board entered an order revoking PEDP's slot machine license by reason of PEDP's failure to follow Board orders and demonstrate its financial suitability. App'x 113 ¶ 42, 116 ¶ 60.

PEDP appealed from the revocation order to the Commonwealth Court of Pennsylvania. PEDP argued in the Commonwealth Court that the Board applied the wrong test for determining its financial suitability, the financial suitability requirements were unconstitutionally vague, and the Board denied PEDP due process of law for several reasons, one of which was a contention that forfeiture of the license for which PEDP had paid a $50 million fee was an excessive sanction to impose by reason of its failures to satisfy the Board's requirements. App'x 851–52, 914–15. The Commonwealth Court rejected PEDP's appeal and affirmed the Board's revocation decision as it concluded that the Board had authority under the Gaming Act to revoke the license, the Board used the appropriate test under the Gaming Act in reaching its decision, the requirements to show financial suitability were clear, and the Board afforded PEDP due process because, among other things, the revocation was not an unreasonably harsh sanction for PEDP's failure to satisfy the conditions for the license. Phila. Entm't & Dev. Partners, LP v. Pa. Gaming Control Bd., 34 A.3d 261, 268–80 (Pa. Commw. Ct. 2011). The Supreme Court of Pennsylvania denied PEDP's petition for allowance of appeal from the Commonwealth Court's decision on March 29, 2012. Phila. Entm't & Dev. Partners, LP v. Pa. Gaming Control Bd., 615 Pa. 146, 41 A.3d 852 (2012).

Two years later, on March 31, 2014, PEDP filed a petition in bankruptcy under Chapter 11 of the Bankruptcy Code, App'x 17, and then, two months after it filed the petition, it filed its adversary complaint against the Commonwealth. App'x 103. This appeal now before us centers on counts Two to Four of the adversary complaint. In Counts Two and Three, PEDP asserted claims to avoid what it claimed was a constructively fraudulent transfer under 11 U.S.C. §§ 548(a)(1)(B) and 544(b) and under Pennsylvania's Uniform Fraudulent Transfer Act ("PUFTA"), 12 Pa. Cons. Stat. §§ 5101 et seq. ¹ Specifically, PEDP claimed that the "revocation of the License was a transfer for which [PEDP] received no value from the Commonwealth. ..." App'x 123 ¶ 97. Thus, in Count Four, PEDP sought recovery of what it claimed was a fraudulent transfer under 11 U.S.C. §§ 550 and 551. PEDP sought to avoid the transfer and recover payment from the Commonwealth of the full value of the transfer, which PEDP estimated to be $50 million, the amount of the license fee it had paid. App'x 123 ¶¶ 96–104, 125 ¶ 114.

PEDP also asserted separate claims for turnover of the amount of the license fee that the Commonwealth did not return (Count One), for an unconstitutional taking (Count Five), and on theories that the Commonwealth had been unjustly enriched and PEDP was entitled to a recovery on the basis of promissory estoppel (Counts Six and Seven). We, however, are not concerned with counts One, Five, Six, and Seven on this appeal as their dismissal is not presently challenged.

In July 2014, the Bankruptcy Court confirmed PEDP's liquidation plan, which called for the creation of a liquidation trust supervised by Persil. App'x 17–18. Persil as Trustee succeeded to all claims belonging to PEDP. App'x 3; First Modified Chapter 11 Liquidation Plan 21–22, In re Phila. Entm't & Dev. Partners, LP, No. 14-12482, ECF No. 88 (Bankr. E.D. Pa. May 27, 2014).

On April 8, 2016, the Bankruptcy Court dismissed the adversary complaint. In re Phila. Entm't & Dev. Partners, LP, 549 B.R. 103, 110–11 (Bankr. E.D. Pa. 2016). The Bankruptcy Court found that the Rooker–Feldman doctrine divested it of subject matter jurisdiction to consider a claim for the avoidance of the license revocation. Id. at 111, 139. It stated,

the Rooker–Feldman Doctrine precludes the Trustee from attempting to challenge the prepetition revocation of the License. The Debtor lost in state court. To the extent the Trustee alleges that some interest in the License inured to the benefit of the estate, the Trustee would be complaining of injuries caused by the Revocation Order that was subsequently confirmed by the Commonwealth Opinion. The Revocation Order and the Commonwealth Opinion were entered prepetition. Finally, if this Court was to determine that the Debtor held an interest in the License or some right to be compensated for its value, this Court would necessarily be required to review the merits of the earlier state court decisions. Accordingly ... this Court is thereby prevented from addressing or otherwise modifying the prepetition revocation of the Debtor's interest in the License.

Id. at 139 (emphasis removed).

The Bankruptcy Court then addressed the Trustee's claim for compensation for the value of the license. The Bankruptcy Court stated that a claim to undo the revocation and to obtain compensation for the revocation are "opposite sides of the same coin"; that is, the right to be compensated for the value of the license is the "functional equivalent" of the right to retain the license, a conclusion that led the Court...