Park Restoration, LLC v. Summit Twp. (In re Trs. of Conneaut Lake Park, Inc.)

• Decision Date: 22 December 2015
• Docket Number: Adversary No. 15–1010–JAD,Bankruptcy No. 14–11277–JAD
• Citation: 543 B.R. 193
• Parties: In re: Trustees of Conneaut Lake Park, Inc., Debtor–in–Possession. Park Restoration, LLC, Plaintiff, v. Summit Township, a Municipal Corporation; The Trustees of Conneaut Lake Park, a Charitable Trust; Crawford County, a Political Subdivision; The Tax Claim Bureau of Crawford County; and The Conneaut School District, Defendants.
• Court: U.S. Bankruptcy Court — Western District of Pennsylvania

543 B.R. 193

In re: Trustees of Conneaut Lake Park, Inc., Debtor–in–Possession.Park Restoration, LLC, Plaintiff,

v.Summit Township, a Municipal Corporation; The Trustees of Conneaut Lake Park, a Charitable Trust; Crawford County, a Political Subdivision; The Tax Claim Bureau of Crawford County; and The Conneaut School District, Defendants.

Bankruptcy No. 14–11277–JAD

Adversary No. 15–1010–JAD

United States Bankruptcy Court, W.D. Pennsylvania.

Signed December 22, 2015

John F. Mizner, Esq., Counsel to Park Restoration, LLC

George T. Snyder, Esq. and Jeanne S. Lofgren, Esq., Counsel to the Trustees of Conneaut Lake Park, Inc.

Lawrence C. Bolla, Esq., Counsel to Summit Twp., Crawford County, the Tax Claim Bureau of Crawford County, and the Conneaut School District

Anthony T. Kovalchick, Esq., Deputy Attorney General for the Commonwealth of Pennsylvania

MEMORANDUM OPINION

Jeffery A. Deller, Chief U.S. Bankruptcy Judge

This adversary proceeding is a civil action that was removed to this Court from the Court of Common Pleas of Crawford County, Pennsylvania.

This adversary proceeding seeks a declaratory judgment regarding the relative rights of the Trustees of Conneaut Lake Park, Inc. (the "Debtor"), Park Restoration, LLC (the "Plaintiff") and certain tax creditors of the Debtor (specifically Summit Township, Crawford County, the Tax Claim Bureau of Crawford County and Conneaut School District (collectively, the "Taxing Authorities")) as to fire insurance proceeds in the original amount of $611,000.

This Court has subject-matter jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b), and this action is a core proceeding pursuant to 28 U.S.C. §§ 157(b)(2)(A),(E), (K), (M) and (O).

Procedurally, the parties seek a final determination of this matter by way of dueling Motions for Summary Judgment. The Court describes the motion practice as "dueling" because the Taxing Authorities filed their own Motion for Summary Judgment (which was met with opposition by the Plaintiff). In turn, the Plaintiff filed its Motion for Summary Judgment which received opposition from both the Debtor and the Taxing Authorities.

Because the Plaintiffs claim to the insurance proceeds rests, in part, upon a Constitutional challenge to a state statute, the matter was certified to the Attorney General of the Commonwealth of Pennsylvania pursuant to 28 U.S.C. § 2403. The Commonwealth, through its Attorney General, subsequently filed various response briefs in opposition to the Plaintiffs Motion for Summary Judgment.

After briefing was completed and the Court having conducted numerous hearings, the dueling motions are now ripe for determination.

For the reasons that are set forth below, the Court shall enter an order that grants partial summary judgment in favor of the Plaintiff and grants partial summary judgment in favor of the Taxing Authorities. Towards that end, the Court finds that no genuine issue of material fact exists and that a judgment as a matter of law is appropriate insofar as: (a) the Taxing Authorities are entitled to be paid $478,260.75 of the Insurance Proceeds (as defined in footnote 1 below); and (b) the Plaintiff is entitled to the remaining Insurance Proceeds that are held in the registry maintained by the Clerk of the United States Bankruptcy Court for the Western District of Pennsylvania.¹

I.

A fair reading of the pleadings and briefs filed by all of the parties in this case is that the parties concede that (a) the material facts are not in dispute, and (b) this case is ripe for determination according to the standards by which federal courts enter summary judgment. For the sake of completeness, however, this Court has undertaken an independent review of the record and agrees that this case is ripe for summary judgment.

II.

The standard upon which federal courts determine motions for summary judgment is found at Fed.R.Civ.P. 56 (which is incorporated into bankruptcy proceedings by operation of Fed.R.Bankr.P. 7056 ). This rule states, in pertinent part, as follows: "the court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." See Fed.R.Civ.P. 56(a).

When considering a motion for summary judgment, the court should "(i) resolve conflicting evidence in favor of the nonmovant, (ii) not engage in credibility determinations, and (iii) draw all reasonable inferences in favor of the nonmovant." Fuentes v. Perskie, 32 F.3d 759, 762 n. 1 (3d Cir.1994).

The moving party also has the initial burden of pointing out evidence which the moving party believes entitles it to judgment as a matter of law, after which the nonmoving party must "respond by pointing to sufficient cognizable evidence to create material issues of fact concerning every element as to which the nonmoving party will bear the burden of proof at trial." Id. (citing Davis v. Portline Transportes Maritime Internacional, 16 F.3d 532, 536 & n. 3 (3d Cir.1994) ).

To prevail on a motion for summary judgment, "the non-moving party must present more than a mere scintilla of evidence; there must be evidence on which the jury could reasonably find for the [non-movant]." Jakimas v. Hoffman n –La–Roche, Inc., 485 F.3d 770, 777 (3d Cir.2007) (quotation marks omitted, and quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ).

With these standards in mind, the Court analyzes the dueling motions for summary judgment and determines that relief is appropriate given the state of the law and the uncontested facts presented to the Court.

III.

The facts of this case are not in genuine dispute; nor are the facts overly complicated.

In a nutshell the Plaintiff managed and operated what is commonly known as the "Beach Club," which was situated on the Debtor's property at or near the shore of Conneaut Lake. (See Response to Motion for Summary Judgment at ¶ 10 filed at Dkt. # 35).²

The Beach Club Management Agreement dated November 24, 2008 has been described by some of the parties as being akin to a lease of the Beach Club, but recently the parties have waffled as to this characterization. (Compare id. (denying lease nature of transaction) with the Complaint for Declaratory Judgment at ¶ 8 and Amended Complaint for Declaratory Judgment at ¶ 10 and filed at Dkt. # 1 (acknowledging lease nature of transaction); see also Debtor's Answer and New Matter at ¶¶ 8 and 9, and Crawford County Tax Claim Bureau Answer and New Matter at ¶ 10 (suggesting that the Plaintiff leased the Beach Club from the Debtor).

What is not in dispute is that at all times relevant hereto (a) the Debtor was the fee owner of both the subject real estate and Beach Club on which it sits, and (b) the Plaintiff had physical control (i.e., possession) of the Beach Club for the term described in the Beach Club Management Agreement.³ (Response to Motion for Summary Judgment filed at Dkt. # 35; see also id. at Ex. A).

In connection with its control and use of the Beach Club, the Plaintiff obtained a policy of insurance from Erie Insurance Exchange which included "Property Protection" covering "Buildings" in case of fire damage in the amount of $611,000. (See Motion for Summary Judgment filed at Dkt. # 30 at ¶ 12). Although the Plaintiff had the option of purchasing coverage for "Income Protection," it declined to do so. (See Renewal Certificate attached as Ex. C (docketed as Ex. B) to the Reply Brief in Support of Plaintiffs Motion for Summary Judgment filed at Dkt. # 53)(reflecting no "Income Protection").

On August 1, 2013, the Beach Club was completely destroyed by fire. (See Motion for Summary Judgment filed at Dkt. # 30 at ¶ 13). As a result of the destruction, the Plaintiff submitted a claim for the proceeds of the underlying insurance policy with Erie Insurance Exchange. (Id. at ¶ 14). At that juncture, the Taxing Authorities were owed outstanding taxes on the real estate in the amount of $478,260.75. (Id. at 18–23).

Erie Insurance Exchange, in turn, indicated that it was going to comply with 40 P.S. § 638 (the "State Statute"). It did so because the Tax Collector of Summit Township presented Erie Insurance Exchange with a certificate specifying that the Beach Club property remained subject to the outstanding tax obligations of the Taxing Authorities in the amount of $478,260.75. (Id. at 115).

The State Statute provides that an insurance company presented with "a claim of a named insured for fire damage to a structure located within a municipality" may not pay such a claim in excess of $7,500 without first receiving a "certificate" explaining whether "delinquent taxes, assessments, penalties or user charges against the [insured] property" are owed to the municipality. See 40 P.S. § 638(a), (b)(1)(i)-(ii). After receiving a "certificate and bill" indicating that the covered property remains subject to a municipal tax liability, the State Statute further provides that an insurance company must "return the bill to the [municipal] treasurer and transfer to the treasurer an amount from the insurance proceeds necessary to pay the taxes, assessments, penalties, charges and costs shown on the bill." Id. at § 638(b)(2)(ii).⁴

Notwithstanding the express terms of the State Statute, the Plaintiff disputed (and continues to dispute) payment of any of the Insurance Proceeds to the Taxing Authorities, and commenced an action against them, the Debtor and Erie Insurance Exchange on September 10, 2013 in the Court of Common Pleas of Crawford County, Pennsylvania.

In the action, the Plaintiff sought a declaration that the delinquent taxes owed by the Debtor did not entitle the relevant Taxing Authorities to any of the Insurance Proceeds otherwise payable to the Plaintiff under the applicable policy. Erie Insurance Exchange then filed an interpleader action in the Court of Common Pleas, and the funds were deposited with the state trial court.

After the commencement of the Debtor's bankruptcy case on December 4, 2014,...