Butko v. Ciccozzi (In re Butko)

• Decision Date: 08 January 2021
• Docket Number: Case No. 20-21255-GLT
• Citation: 624 B.R. 338
• Parties: IN RE: Richard P. BUTKO and Lorraine E. Butko, Debtors. Richard P. Butko and Lorraine E. Butko, Movant, v. Ronald A. Ciccozzi, Respondents.
• Court: U.S. Bankruptcy Court — Western District of Pennsylvania

624 B.R. 338

IN RE: Richard P. BUTKO and Lorraine E. Butko, Debtors.Richard P. Butko and Lorraine E. Butko, Movant,

v.Ronald A. Ciccozzi, Respondents.

Case No. 20-21255-GLT

United States Bankruptcy Court, W.D. Pennsylvania.

Signed January 8, 2021

Max C. Feldman, Esq., Law Offices of Max C. Feldman, Coraopolis, PA, Attorney for the Butkos

Christian M. Rieger, Esq., The Law Office of Christian M. Rieger, Pittsburgh, PA, Attorney for Mr. Ciccozzi

MEMORANDUM OPINION

GREGORY L. TADDONIO, UNITED STATES BANKRUPTCY JUDGE

In our legal system, disappointed litigants have the right to exhaust every legitimate remedy available before resigning themselves to the finality of an adverse judgment. But they may not continually rehash rejected arguments, engage in forum shopping, and launch repeated collateral attacks in a futile attempt to forestall the inevitability of a final judgment. Richard P. and Lorraine E. Butko ("Debtors") seek reconsideration¹ of an order granting Ronald A. Ciccozzi relief from the automatic stay to pursue his rights to a residential property in Monaca, Pennsylvania following their default under an installment land contract.² As a practical matter, this represents the Debtors' fifth attempt to overturn an un-appealed decision of this Court entered over two years ago about the applicability of certain state law defenses.³ Given this reality, and perceiving the Motion to be wholly without merit, the Court issued an order to show cause (the "Order to Show Cause"), threatening both the denial of the Motion and the imposition of sanctions against the Debtors and their counsel, Attorney Max C. Feldman.⁴ They filed a timely response challenging each of the observations that prompted the Order to Show Cause .⁵ Mr. Ciccozzi opposes the Motion .⁶ While the Court is under no illusion that its decision on these matters will end the war between the Debtors and Mr. Ciccozzi, it will, at least, once again close this front. For the reasons set forth below, the Court will deny the Motion but will forgo imposing sanctions for now.

I. BACKGROUND

The facts, which are almost entirely a matter of record, are uncontested. Instead, the Debtors contend that the Court has made a series of legal errors regarding the applicability of certain provisions of the Pennsylvania Loan Interest and Protection Law, a consumer protection statute more commonly known as "Act 6,"⁷ that have tainted all subsequent proceedings. At issue is the extended cure period afforded to homeowners in default by Act 6 and the requirement that mortgagees provide them a statutory notice prior to any collection action. To appropriately set the stage and emphasize the procedural complexity of the relief now requested, a review of the tortured history of this acrimonious dispute is necessary.

Before doing so, the Court would be remiss if it did not acknowledge from the outset that the stakes are understandably very high for the Debtors. Indeed, they face the loss of their home of over a decade and any potential equity within it. But this consequence did not strike without warning and arises solely from their inability to honor their agreements. It is also important to recognize that Mr. Ciccozzi has endured years of bitter and costly litigation with no end in sight and no post-default right to adequate protection. Given these realities, the Court has endeavored to give the Debtors all process and consideration that is due and befits the gravity of the situation.

A. The Genesis of the Dispute

In July 2009, the Debtors entered into an installment land contract with Mr. Ciccozzi and his late wife, Joan, to purchase certain real property in Monaca, Pennsylvania ("Property").⁸ In December 2014, the parties executed a Lease with Option to Purchase ("Lease") that, among other things, terminated the 2009 agreement and released any related rights.⁹ It is unclear why the parties changed their agreement.¹⁰ In any event, the Lease called for the Debtors to pay monthly rent in the amount of $1,675.¹¹ On or before November 1, 2017, they could elect to purchase the Property for $43,632 (plus costs) upon 30 days' notice to the Ciccozzis and receive a credit of $1,212 towards the purchase price from each tendered rental payment.¹² A little less than two years later, the Debtors defaulted on their rental payment obligation, prompting them to seek bankruptcy protection.¹³

B. The 2016 Bankruptcy

On October 1, 2016, the Debtors filed a chapter 13 petition with the assistance of Attorney Gary W. Short.¹⁴ Almost immediately, Mr. Ciccozzi filed a motion for stay relief alleging that the Debtors had no more than a limited possessory interest in the Property due to their default.¹⁵ The Debtors opposed, positing that the Lease was not a true lease, but a disguised financing agreement in the form of an installment land contract.¹⁶ Notably, this was the first time the Debtors raised the Act 6 notice and cure provisions as a defense before this Court.¹⁷ On December 22, 2016, the Court issued a Memorandum Order finding the Lease to be a true lease agreement because it was terminable at will.¹⁸ The Court nonetheless denied stay relief at that time because the Lease 's cure period had not expired prior to the petition date.¹⁹ The Debtors appealed, but the United States District Court for the Western District of Pennsylvania dismissed the appeal as interlocutory.²⁰

Undaunted, the Debtors then filed an amended chapter 13 plan to assume the Lease under section 365 of the Bankruptcy Code²¹ and exercise the purchase option during the plan term.²² Mr. Ciccozzi objected to the plan disputing, among other things, the continued availability of the purchase option upon assumption.²³ In response, the Debtors requested reconsideration of the Memorandum Order , asserting that the Lease satisfied the definition of a security instrument subject to Act 6 requirements and protections.²⁴ Hoping to move the parties past their bitterness and towards a consensual resolution of their dispute, the Court referred the matter to mediation before the Honorable Judith K. Fitzgerald, a former chief judge of this Court.²⁵

1. The Settlement Agreement

Mediation proved fruitful, though not in any lasting sense. Recognizing the high cost of litigating all of the disputed issues between them, the Debtors and Mr. Ciccozzi entered into a settlement agreement ("Settlement Agreement") that essentially reset the parties' rights and gave the Debtors one last chance to complete the sale.²⁶ The Settlement Agreement required the Debtors to pay Mr. Ciccozzi $1,675 on the fifth of each month for thirty-six months, effectively spreading the increased purchase price of $60,300 over an additional three years beyond the Lease 's option deadline.²⁷ Unlike the Lease , the Debtors received full credit for each payment.²⁸ If all went according to plan and the Debtors timely made all payments, an executed deed to the Property would be released to them from escrow.²⁹

Commensurate with their intent that the Settlement Agreement finally end the dispute, the default provisions also had teeth. The Debtors were provided a ten-day cure period upon a payment default that expired on the 16th day of the month.³⁰ Under the Settlement Agreement , Mr. Ciccozzi expressly had no obligation to notify the Debtors of any nonpayment.³¹ It also provided that if a default was not timely cured, "then all rights that [the] Butkos may have in the Property shall finally and permanently terminate" and that they "will have 30 days from the 17th day of the calendar month to remove voluntarily from the Property."³² In other words, the Debtors needed to promptly pay or walk away.

In the event of an uncured default, Mr. Ciccozzi would be entitled to stay relief upon an affidavit of default.³³ If the Debtors failed to leave the Property as required, then the Court would enter a judgment for possession in favor of Mr. Ciccozzi in the attached form.³⁴ Presumably due to the operative speed of these provisions, the Settlement Agreement did not contemplate any economic remedies post-default, such as late fees or interest.

In September 2017, the Debtors presented the Settlement Agreement to this Court for approval under Bankruptcy Rule 9019.³⁵ From the start, the Debtors were admittedly fully aware of the heavy repercussions of a future default:

It is admitted that the forfeiture procedure is dangerous. The Butkos have been fully informed of this risk and have been advised to attend the hearing on this motion. They agree to accept this risk due to their inability to fund the option payment and extensive additional litigation costs absent settlement and to remove any risk of loss of the Residence by an adverse ruling on appeal.³⁶

The Debtors pledged their commitment to the settlement by insisting they would implement precautionary measures, such as depositing $13,000 of exempt funds in a special purpose account, to ensure compliance.³⁷ Despite its stated misgivings on the record about the onerous nature of the default provisions, the Court approved the Settlement Agreement subject to certain modifications, including a requirement that Mr. Ciccozzi report any default to the Court within two days after the expiration of the cure period.³⁸

2. The First Alleged Defaults and the Assertion of Act 6

Less than two months later, Mr. Ciccozzi filed an affidavit notifying the Court that the Debtors were in default of their November 2017 payment obligation and requesting enforcement of the forfeiture provisions of the Settlement Agreement .³⁹ The Debtors quickly moved to deny Mr. Ciccozzi relief, arguing that the Settlement Agreement was itself an installment land contract subject to Act 6, affording them an unwaivable right to a statutory notice of default and a 30-day cure period.⁴⁰ Thus, while they admitted they did not make payment by November 16, 2017, the Debtors asserted that the applicable cure period had not yet started due to Mr. Ciccozzi's failure to provide a proper notice under Act 6....