Phila. Entm't & Dev. Partners LP v. Pa. Dep't of Revenue

• Decision Date: 29 June 2021
• Docket Number: No. 20-3171,20-3171
• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)
• Parties: In re PHILADELPHIA ENTERTAINMENT AND DEVELOPMENT PARTNERS LP, d/b/a Foxwoods Casino Philadelphia, Debtor 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

In re PHILADELPHIA ENTERTAINMENT AND DEVELOPMENT PARTNERS LP,

d/b/a Foxwoods Casino Philadelphia, Debtor 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

No. 20-3171

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

Submitted: May 24, 2021

June 29, 2021

NOT PRECEDENTIAL

Appeal from the United States District Court for the Eastern District of Pennsylvania

(D.C. No. 2-20-cv-00295)

District Judge: Honorable Joseph F. Leeson, Jr.

Submitted under Third Circuit L.A.R. 34.1(a)

May 24, 2021

Before: GREENAWAY, JR., SHWARTZ, Circuit Judges, and KANE, District Judge.^*

OPINION^**

SHWARTZ, Circuit Judge.

Philadelphia Entertainment and Development Partners, LP ("PEDP") obtained a slot machine license from the Pennsylvania Gaming Control Board ("Board") in exchange for a $50 million fee. PEDP failed to satisfy the conditions of the license, so the Board revoked it. PEDP thereafter filed for Chapter 11 bankruptcy and commenced an adversary action against the Commonwealth for fraudulent transfer pursuant to 11 U.S.C. §§ 544(b), 548, 550, and 551, and the Pennsylvania Uniform Fraudulent Transfer Act ("PUFTA"), 12 Pa. Cons. Stat. §§ 5101 et seq., seeking to recover the value of the license.¹

The Bankruptcy Court dismissed the adversary action because, among other things, it was barred by sovereign immunity. The District Court affirmed. We agree and will also affirm.

I

A

As we explained in In re Philadelphia Entertainment & Development Partners, LP, 879 F.3d 492, 495 (3d Cir. 2018) ("Phila. Ent. I"), the Board awarded a slot machine license to PEDP, for which PEDP paid $50 million. The "Board required PEDP to openits facility and commence the operations by May 2009, but PEDP did not meet this deadline and has never opened the facility. . . [and] the Board . . . revok[ed] PEDP's slot machine license[.]" Id. The Pennsylvania courts rejected PEDP's challenges to the revocation orders. See Phila. Ent. & Dev. Partners, LP v. Pa. Gaming Control Bd., 34 A.3d 261, 268-80 (Pa. Commw. Ct. 2011); Phila. Ent. & Dev. Partners, LP v. Pa. Gaming Control Bd., 41 A.3d 852 (Pa. 2012).

Thereafter,

PEDP filed a petition in bankruptcy under Chapter 11 of the Bankruptcy Code, . . . and [an] adversary complaint against the Commonwealth. . . . 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 [PUFTA], . . . [and sought to] 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.

. . .

[T]he Bankruptcy Court dismissed the adversary complaint [based on the Rooker-Feldman doctrine,] In re Phila. Ent. & Dev. Partners, L.P., 549 B.R. 103, 110-11 (Bankr. E.D. Pa. 2016)[,] . . . [and] the District Court affirmed.

Phila. Ent. I, 879 F.3d at 495-98. We reversed, concluding that the Rooker-Feldman doctrine did not bar the Bankruptcy Court's review of the fraudulent transfer claims, id. at 502-03, and remanded for the District Court to address, among other things, "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.

B

On remand, the Bankruptcy Court dismissed Plaintiff's fraudulent transfer claims with prejudice. In re Phila. Ent. & Dev. Partners, L.P., 611 B.R. 51, 57, 77 (Bankr. E.D.Pa. 2019) ("Phila. Ent. II"). The Court concluded, among other things, that sovereign immunity barred the claims because they (1) did not invoke the Court's in rem jurisdiction nor were they ancillary to that jurisdiction since the license did not constitute property or an asset of PEDP, id. at 68; and (2) sought only to recover the purported value of the license, making it a suit for money damages, which is not subject to the narrow sovereign immunity exception set forth in Central Virginia Community College v. Katz, 546 U.S. 356 (2006), Phila. Ent. II, 611 B.R. at 67.² The District Court affirmed, see In re Phila. Ent. & Dev. Partners, LP, 623 B.R. 114, 123 (E.D. Pa. 2020) ("Phila. Ent. III"), holding, among other things, that sovereign immunity bars the fraudulent transfer claims because the license was not the property of PEDP.

PEDP appeals.

II³

A

Because sovereign immunity limits our jurisdiction, see In re Hechinger Inv. Co. of Del., 335 F.3d 243, 249 (3d Cir. 2003), we must first determine whether the Commonwealth has waived the sovereign immunity that would otherwise bar PEDP's suit. "Waivers of the Government's sovereign immunity, to be effective, must be 'unequivocally expressed,'" and are narrowly construed. United States v. Nordic Vill. Inc., 503 U.S. 30, 33-34 (1992) (citation omitted). In the bankruptcy context, we have determined that the sovereign immunity defense is unavailable for causes of action that "further[] a bankruptcy court's in rem jurisdiction."⁴ See In re Venoco LLC, 998 F.3d 94, 104 (3d Cir. 2021) (citing Katz, 546 U.S. at 370-78). As a result, if PEDP cannot show it had a property interest in the license, then this adversary proceeding does not concern PEDP's bankruptcy estate and is barred by sovereign immunity because it does not further the Bankruptcy Court's in rem jurisdiction. See id. at 104-05 & n.12 (noting that sovereign immunity is not foreclosed in fraudulent conveyance proceedings where the purported transfer is not of the debtor's property (citing Phila. Ent., 549 B.R. at 123)). Accordingly, we must determine whether the license was PEDP's property.

B

We generally "look to state law to determine the nature of a debtor's interest in property." In re Net Pay Sols., Inc., 822 F.3d 144, 158 n.13 (3d Cir. 2016); see also Butner v. United States, 440 U.S. 48, 55 (1979) ("Property interests are created and defined by state law . . . [u]nless some federal interest requires a different result."). Because Pennsylvania statutes govern this dispute, and we must interpret them to determine whether PEDP had a property interest in the license, we "apply the [Pennsylvania] Statutory Construction Act ["SCA"], which directs us to ascertain and effectuate the intent of the General Assembly." Johnson v. Phelan Hallinan & Schmieg, LLP, 235 A.3d 1092, 1097 (Pa. 2020) (citing 1 Pa. Cons. Stat. § 1921(a)). According to the SCA, "[t]he best indication of legislative intent is the plain language of a statute." Commonwealth by Shapiro v. Golden Gate Nat'l Senior Care LLC, 194 A.3d 1010, 1027 (Pa. 2018). "Words and phrases ordinarily should be understood according to their common and approved usage." Id. at 1027-28 (citation omitted). "Only when the words of a statute are ambiguous will we resort to other considerations to discern legislative intent." Johnson, 235 A.3d at 1097 (citing 1 Pa. Cons. Stat. § 1921(c)).

We must decide whether the Pennsylvania Horse Racing Development and Gaming Act ("Gaming Act") or PUFTA grants PEDP a property interest in the license. The Gaming Act provides that "[t]he issuance or renewal of a license . . . shall be a revocable privilege." 4 Pa. Cons. Stat. § 1311(d); see also id. §§ 1102(7) ("Participation in limited gaming authorized under this part by any licensee . . . shall be deemed a privilege."), 1326(b) ("[T]he board may at its discretion . . . revoke . . . any . . . license . . . issued under this part if it receives any information from any source that the applicant . .. is in violation of any provision of this part."). Moreover, the Gaming Act provides that a license issued by the Board "shall not be sold, transferred or assigned," and that the Gaming Act should not be construed "to create in any person an entitlement to a license." Id. § 1327. Thus, under its plain language, the Gaming Act grants only a revocable, discretionary, non-transferable privilege to operate a facility with slot machines. A licensee therefore does not own the license, and, accordingly, it is not the property of the licensee.

PUFTA defines "[p]roperty" as "[a]nything that may be the subject of ownership." 12 Pa. Cons. Stat. § 5101(b).⁵ Ownership, in turn, is "the right to possess a thing." Ownership, Black's Law Dictionary (5th ed. 2016). Although PEDP possessed the license, the Gaming Act makes clear that there is no entitlement to a license and that a license is a conditional, revocable, and non-transferable privilege. See 4 Pa. Cons. Stat. § 1327; see also Arneault v. O'Toole, 864 F. Supp. 2d 361, 395 (W.D. Pa. 2012) (Plaintiff "d[id] not have a protected property right under state law to engage in the gaming industry, since Pennsylvania law expressly makes the granting of a gaming license a revocable privilege."). Thus, under the text, the license is not something a licensee owns and hence it is not property under PUFTA.

PUFTA's legislative history, viewed in light of the tools of statutory interpretation, compels the same result. A committee comment to § 5101(b) provides that "[t]he definition of 'property' is intended to be construed broadly, to include anyright or interest that contributes to the value of a person."⁶ Id. at cmt. 9. Further, the comment states that "'property' in general includes licenses . . . whether or not transferable," and "[i]n particular, but without limitation, governmental licenses . . . that contribute to the value of the holder in general should be deemed 'property' of the holder, whether or not transferable, regardless of whether such items are deemed 'property' for other purposes." Id. Thus, § 5101 of PUFTA, read together with its comments,⁷ conflicts with the Gaming Act concerning whether PEDP's slot machine license constitutes PEDP's property. While the Gaming Act provides that a slot machine license is revocable, non-transferable, and not an item to which a party...