In re Phila. Entm't & Dev. Partners, LP
| Citation | 623 B.R. 114 |
| Decision Date | 30 September 2020 |
| Docket Number | Adversary No. 14-00255,Civil Action No. 2:20-cv-00295,Bankruptcy No. 14-12482 |
| Parties | IN RE: PHILADELPHIA ENTERTAINMENT AND DEVELOPMENT PARTNERS, LP, Debtor In re: Philadelphia Entertainment and Development Partners, LP, d/b/a Foxwoods Casino Philadelphia, Plaintiff v. Commonwealth of Pennsylvania Department of Revenue, and Commonwealth of Pennsylvania, Defendants |
| Court | U.S. District Court — Eastern District of Pennsylvania |
Fred Warren Jacoby, Jared Dimock Bayer, Jennifer M. McHugh, Stephen A. Cozen, Cozen & O'Connor, Philadelphia, PA, for Plaintiffs.
Albert S. Dandridge, III., Richard A. Barkasy, Bruce P. Merenstein, Schnader, Harrison, Segal and Lewis, LLP, Daniel M. Pereira, Stradley Ronon Stevens & Young, LLP, Jon Theodore Pearson, Vincent J. Marriott, III, Ballard Spahr Andrews & Ingersoll, Philadelphia, PA, for Defendants.
Appeal of Bankruptcy Court's Order dated December 31, 2019- Affirmed
Persil Mangeur LLC, in its capacity as the trustee of the Liquidation Trust for the estate of the debtor Philadelphia Entertainment and Development Partners, LP d/b/a Foxwoods Casino Philadelphia ("PEDP"), the plaintiff in the above-captioned adversary action, appeals from the order granting the Commonwealth Defendants' Motion to Dismiss Adversary Complaint or, in the Alternative, to Abstain, entered by the United States Bankruptcy Court for the Eastern District of Pennsylvania on December 31, 2019. After de novo review, the Bankruptcy Court's decision is affirmed.
In a 2018 opinion, the Third Circuit Court of Appeals described the background1 of this case as follows:
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. [It did not return any part of the $50 million license fee.] 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[2 ] 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.
Phila. Entm't & Dev. Partners, LP v. Dep't of Revenue (In re Phila. Entm't & Dev. Partners, LP) , 879 F.3d 492, 494-95 (3d Cir. 2018) (" PEDP IV"). The matter was remanded to this Court, which at its option, remanded the matter to the Bankruptcy Court for further proceedings to address:
(1) whether claim or issue preclusion bars judicial review of the Trustee's claim that the license revocation was a constructively fraudulent transfer under § 548(a)(1)(B) or § 544(b) and the PUFTA;[3 ] and if not (2) whether the Trustee has stated a claim that the license revocation constitutes a fraudulent transfer under § 548(a)(1)(B) or § 544(b) and the PUFTA; and (3) whether the Eleventh Amendment bars judicial review of the Trustee's claim that the license revocation was a constructively fraudulent transfer under § 548(a)(1)(B) or § 544(b) and the PUFTA.
Id. at 504 ; PEDP III , No.: 16-cv-01992, Order dated April 19, 2019, at ECF No. 29. On remand, the Bankruptcy Court concluded:
(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.
Phila. Entm't & Dev. Partners, LP v. Pa. (In re Phila. Entm't & Dev. Partners, L.P.) , 611 B.R. 51, 57 (Bankr. E.D. Pa. 2019) (" PEDP V"). That decision is the subject of the instant appeal.
The Trustee asserts that the Bankruptcy Court, relying on definitions in the Gaming Act4 rather than in the PUFTA, erred in holding that the License did not constitute property, an interest in property, or an asset of PEDP for purposes of the fraudulent transfer claims. This determination was essential in the Bankruptcy Court's conclusions that the fraudulent transfer claims are barred by sovereign immunity and that PEDP failed to state a claim for fraudulent transfer under the Bankruptcy Act and the PUFTA. Because this Court, after de novo review, holds that the License was not the property of PEDP, the Bankruptcy Court's decision is affirmed.
On appeal, a district court reviews a Bankruptcy Court's findings of fact applying a "clearly erroneous" standard of review. See Am. Flint Glass Workers Union v. Anchor Resolution Corp. , 197 F.3d 76, 80 (3d Cir. 1999). A district court reviews the Bankruptcy Court's legal determinations de novo.5 See Sovereign Bank v. Schwab , 414 F.3d 450, 452 (3d Cir. 2005).
This case essentially revolves around whether PEDP had a property interest in the License. The Bankruptcy Court concluded that it did not. Consequently, the court determined that sovereign immunity barred the fraudulent transfer claims and PEDP failed to state a claim. For the reasons set forth below, because the Gaming Act makes clear that the issuance of the License was a revocable privilege, see 4 Pa.C.S. § 1311(d), this Court finds after de novo review that the License was not the property of PEDP and the Adversary Complaint was properly dismissed.
PEDP asserted fraudulent transfer claims against the Commonwealth based on the revocation of the License. These claims were brought under § 548(a)(1)(B) of the Bankruptcy Code and under the PUFTA, by virtue of § 544 of the Bankruptcy Code. A threshold requirement for each of the claims is that the License was the property of PEDP. See 11 U.S.C. § 548(a)(1) (); 12 Pa.C.S. §§ 5104 - 5105 (); 12 Pa.C.S. § 5101 (). The Bankruptcy Code does not define "property" or an interest in property. "Congress has generally left the determination of property rights in the assets of a bankrupt's estate to state law." Butner v. United States , 440 U.S. 48, 54, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979).
In looking to state law, the Bankruptcy Court found that the Gaming Act, which governs, inter alia , the creation, issuance, maintenance, and revocation of slot machine licenses, "is the appropriate source of Pennsylvania state law for determining the Debtor's interest in the License." See PEDP V , 611 B.R. at 70. The court noted that § 1102, which sets forth the Pennsylvania General Assembly's stated legislative intent in enacting the Gaming Act, states:
Participation in limited gaming authorized under this part by any licensee, permittee, registrant or certificate holder shall be deemed a privilege, conditioned upon the proper and continued qualification of the licensee, permittee, registrant or certificate holder and upon the discharge of the affirmative responsibility of each licensee, permittee, registrant and certificate holder to provide the regulatory and investigatory authorities of the Commonwealth with assistance and information necessary to assure that the policies declared by this part are achieved.
4 Pa.C.S. § 1102(7). The Bankruptcy Court "view[ed] this as an unequivocal statement that the Pennsylvania legislature intended that the License constitutes a revocable privilege." PEDP V , 611 B.R. at 70 (). The court found that the legislative intent that the License is a revocable privilege is also supported by other provisions of the Gaming Act. See id. (citing 4 Pa.C.S. §§ 1311(d), 1327 - 1328 ; 58 Pa. Code § 421a.1(a) ). It further determined that the "Pennsylvania legislature included express statutory language in § 1327 of the Gaming Act that not only barred the sale, transfers or assignment of the License, but also prevented the formation of a property interest by precluding any entitlement to a license." PEDP V , 611 B.R. at 75-76. The...
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