In re Phila. Entm't & Dev. Partners, LP

• Citation: 569 B.R. 394
• Decision Date: 29 March 2017
• Docket Number: Civil Action No. 2:16–cv–1992
• Parties: IN RE:PHILADELPHIA ENTERTAINMENT AND DEVELOPMENT PARTNERS, LP, d/b/a Foxwoods Casino Philadelphia
• Court: U.S. District Court — Eastern District of Pennsylvania

569 B.R. 394

IN RE:PHILADELPHIA ENTERTAINMENT AND DEVELOPMENT PARTNERS, LP, d/b/a Foxwoods Casino Philadelphia

Civil Action No. 2:16–cv–1992

United States District Court, E.D. Pennsylvania.

Filed March 29, 2017

Fred Warren Jacoby, Jared Dimock Bayer, Jennifer M. McHugh, Eric L. Scherling, Stephen A. Cozen, Cozen & O'Connor, Philadelphia, PA, for Plaintiffs.

Jon Theodore Pearson, Vincent J. Marriott, III, Ballard Spahr LLP, Albert S. Dandridge, III., Bruce P. Merenstein, Schnader, Harrison, Segal and Lewis, LLP, Philadelphia, PA, for Defendants.

OPINION

JOSEPH F. LEESON, JR., United States District Judge

I. INTRODUCTION

This case presents cross bankruptcy appeals filed by Persil Manguer LLC, in its capacity as the trustee of the Liquidation Trust created under the First Modified Chapter 11 Plan of Liquidation of the Debtor Philadelphia Entertainment and Development Partners, LP, d/b/a Foxwoods Casino Philadelphia, and by the Commonwealth of Pennsylvania Department of Revenue and Commonwealth of Pennsylvania (collectively "Commonwealth") from the Order entered April 8, 2016, by the United States Bankruptcy Court for the Eastern District of Pennsylvania. Upon de novo review, the bankruptcy court's opinion is affirmed and adopted. The cross appeals are denied.

II. BACKGROUND¹

A. Gaming License and Revocation

On December 20, 2006, the Pennsylvania Gaming Control Board awarded one of two slot machine licenses to the Debtor. Due to unexpected delays and the inability to secure financial backing, the Debtor was not able to open its casino within one year, as required. The Debtor's request for an extension of time to pay the license fee of $50 million was denied, and it paid the fee in October 2007. However, the Debtor sought and received an extension of time to commence operations until May 2011. In granting an extension, the Gaming Board imposed conditions upon the Debtor, including milestone deadlines and daily fines when they were not met. The Debtor was unable to meet these conditions, and on December 23, 2010, the Gaming Board issued a revocation order, revoking the Debtor's license for financial unsuitability, for failing to commence construction of the casino, and for failing to comply with the Gaming Board's orders. The Commonwealth did not return any part of the $50 million license fee.

The Debtor appealed the revocation order to the Commonwealth Court. The limited issues on appeal were: (1) whether the Board committed reversible error by applying an incorrect legal test to determine that the Debtor violated conditions of its license; (2) whether the Board committed reversible error by applying unconstitutionally vague standards as the basis for revoking the Debtor's license; and, (3) whether the Board violated the Debtor's due process rights by revoking its license via summary judgment without conducting an evidentiary hearing and without providing more discovery. Phila. Entm't & Dev. Partners, L.P. v. Pa. Gaming Control Bd. , 34 A.3d 261, 263 (Pa. Commw. Ct. 2011). In support of the third issue, the Debtor argued:

(1) [the Board] entered summary judgment against PEDP without conducting an evidentiary hearing and reviewing the evidence in a light most favorable to PEDP; (2) the Board's determination was not supported by the record; (3) the Board denied PEDP discovery necessary to support its motion for summary judgment; and, (4) the Board imposed an excessive sanction.

Id. at 275. The Commonwealth Court affirmed the revocation order. Id. at 279 (finding that the Gaming Board applied the correct test in deciding whether the license should be revoked, that the revocation guidelines were not unconstitutionally vague as applied, that the Debtor was given the opportunity to be heard, that there was evidence to support the Gaming Board's decision, and that revocation of the $50 million license was not an excessive sanction).² This decision became final on April 14, 2012.

B. Bankruptcy Proceedings

On March 31, 2014, the Debtor filed a Chapter 11 bankruptcy petition in the United States Bankruptcy Court for the Eastern District of Pennsylvania. In April 2014, the Debtor made a demand upon the Commonwealth for the return of the license fee. The Commonwealth refused.

On May 29, 2014, the Debtor filed an adversary complaint against the Commonwealth, seeking to avoid the license revocation and demanding payment of $50 million, which it claimed was property of the bankruptcy estate. The Debtor asserted bankruptcy claims for turnover (Count I) for the Commonwealth's failure to return the license fee, and for fraudulent transfer (Counts II—IV), arising from the Commonwealth's revocation of the license and failure to provide the reasonably equivalent value for the license after it was revoked. The Debtor also asserted claims for unconstitutional taking (Count V), and for unjust enrichment and promissory estoppel (Counts VI–VII, state law claims).

The bankruptcy plan was thereafter confirmed and the Trustee succeeded to all claims belonging to the Debtor.

On April 8, 2016, the bankruptcy court dismissed the adversary complaint. In re Phila. Entm't & Dev. Partners, L.P. , 549 B.R. 103. The court concluded that: (1) the Trustee failed to state a claim for turnover pursuant to § 542 and, to the extent the actions implicated some transfer other than the revocation of the license, a claim for fraudulent conveyance; (2) application of the Rooker–Feldman Doctrine³ divested it of subject matter jurisdiction to consider the avoidance of the revocation of the license; and (3) sovereign immunity deprived the court of subject matter jurisdiction to hear the Trustee's non-bankruptcy causes of action. Id. at 111. The court declined to address the Commonwealth's request for alternative relief based upon permissive abstention pursuant to 28 U.S.C. § 1334(c)(1) or the Burford abstention doctrine.⁴ Id. The court also refused to determine whether sovereign immunity applies to the fraudulent conveyance claims. Id. at 134–35.

C. Appeal

The Trustee appeals from the April 8, 2016 order entered by the bankruptcy court dismissing the fraudulent transfer claims at Counts II, III, and IV. The Trustee argues that the bankruptcy court misconstrued its fraudulent transfer claims as a challenge to the revocation of the license itself. The Trustee also asserts that the bankruptcy court erroneously perceived the pre-petition Debtor's claims to be the same as the Trustee's, and misapplied Rooker–Feldman to Counts II, III, and IV.⁵

The Commonwealth filed a cross-appeal, asserting that the bankruptcy court's order can be affirmed on the alternative ground that the Commonwealth is immune from the Trustee's fraudulent transfer claims pursuant to the Eleventh Amendment.

III. STANDARD OF REVIEW

On appeal, a district court reviews a bankruptcy court's findings of fact applying a "clearly erroneous" standard of review. 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. Sovereign Bank v. Schwab , 414 F.3d 450, 452 (3d Cir. 2005).

IV. ANALYSIS⁶

A. The bankruptcy court correctly construed the Debtor's bankruptcy claims.

The Trustee argues that the bankruptcy court erred in characterizing the fraudulent transfer claims as a challenge to the legitimacy of the revocation of the Debtor's license. The Trustee asserts that, instead, the claims accept and are premised on the revocation, and challenge only the Commonwealth's failure to return the value of the license after its revocation. The adversary complaint states: "The revocation of the License was a transfer for which the Debtor received no value from the Commonwealth (the "Transfer")." See Adversary Compl. ¶ 97, No. 14–bk–12482 (May 29, 2014), ECF No. 104.

After review, this Court concludes that the bankruptcy court did not misconstrue the claims.

Prior to issuing the order that is the subject of this appeal, the bankruptcy court held oral argument and the following exchange occurred between the Honorable Magdeline D. Coleman and Stephen A. Cozen, counsel for the Debtor:⁷

THE COURT: All I'm trying to establish, and I've got my answer. In order to get to where you want me to get, I have to make a finding that the revocation was a fraudulent transfer. It was a fraudulent transfer because it was revoked, and you didn't to get something in return.

MR. COZEN: Exactly.

N.T. 15:1–6, No. 14–bk–12482 (Nov. 14, 2014), ECF No. 188. This discussion shows that the bankruptcy court did not misunderstand the claims.

The bankruptcy court's written opinion further confirms that the court did not misconstrue the claims. See In re Phila. Entm't & Dev. Partners, L.P. , 549 B.R. at 112 ("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.").⁸

The Trustee's appeal on this basis is denied.

B. Rooker–Feldman bars federal review of any claims seeking to avoid revocation of the license, as the bankruptcy court correctly determined.

The Trustee contends that the bankruptcy court erred in holding that the fraudulent transfer claims are barred by Rooker–Feldman.

Significantly, the bankruptcy court determined that Rooker–Feldman prevented it from considering only whether the license was properly revoked, which is one of the possible constructions of the allegations. See Footnote 7 herein. "To the extent the Bankruptcy Claims do not attempt to undo the revocation of the License, [the bankruptcy court] concluded that it may hear and issue a final order adjudicating the Bankruptcy Claims." In re Phila. Entm't & Dev. Partners, L.P. , 549 B.R. at 117. Many of the Rooker–Feldman arguments raised by the Trustee on appeal are therefore misplaced. To the extent that the appeal appropriately challenges the court's decision, the arguments have been reviewed and are denied. As previously...