Thomas v. City of Phila. (In re Thomas)

• Decision Date: 15 August 2013
• Docket Number: Adversary No. 13–0029.,Bankruptcy No. 04–10175 ELF.
• Citation: 497 B.R. 188
• Parties: In re Milton THOMAS, Sr., Debtor. Milton Thomas, Sr., Plaintiff, v. City of Philadelphia, et al., Defendants.
• Court: U.S. Bankruptcy Court — Eastern District of Pennsylvania

497 B.R. 188

In re Milton THOMAS, Sr., Debtor.

Milton Thomas, Sr., Plaintiff,

v.City of Philadelphia, et al., Defendants.

Bankruptcy No. 04–10175 ELF.

Adversary No. 13–0029.

United States Bankruptcy Court,

E.D. Pennsylvania.

Aug. 15, 2013.

Milton Thomas, Pro Se.

James Christopher Vandermark, City of Philadelphia Law Department, Philadelphia, PA, for Defendants.

OPINION

ERIC L. FRANK, Chief Judge.

I. INTRODUCTION

It is the hope of every chapter 13 bankruptcy debtor that the completion of his or her chapter 13 plan will solve, once and for all, the debt problems that drove the debtor into bankruptcy. Unfortunately, it does not always work out that way. Sometimes, the status of a pre-petition debt is not entirely clear after the conclusion of the bankruptcy case and it is necessary for the bankruptcy court to revisit the case to sort out the legal consequences of the events that took place and whether additional relief should be afforded to the debtor. This is such a case.

Milton Thomas (“the Debtor”) filed a chapter 13 case in 2004, completed his chapter 13 bankruptcy plan and received a discharge in 2009. In 2012, he filed a civil action in the U.S. District Court for the Eastern District of Pennsylvania, challenging the post-petition and postdischarge collection actions of five (5) defendants. The district court referred the civil action to this court. Thus, the Debtor has returned to this court to enforce what he believes are the benefits of completing his chapter 13 bankruptcy case.

Three (3) of the five (5) defendants filed motions to dismiss the Debtor's complaint: under Rule 12(b)(1) for lack of subject matter jurisdiction, and under Rule 12(b)(6) for failure to state a claim upon which relief can be granted.¹ After reviewing the materials submitted by the parties, I concluded that the Rule 12(b)(6) motions should be treated as motions for summary judgment under Fed.R.Civ.P. 56 and afforded the parties an opportunity to present additional material in support or opposition to the motions. SeeFed.R.Civ.P. 12(c).

The matters are now ready for decision.

For the reasons explained below, I will:

(1) grant the summary judgment motions filed by the three (3) defendants; and

(2) provide the Debtor with an opportunity to be heard as to why the complaint should not be dismissed with respect to the two (2) remaining defendants who did not file motions to dismiss.²

II. FACTUAL AND PROCEDURAL BACKGROUND

In order to understand the issues before the court, it is necessary to set out the somewhat lengthy and convoluted procedural and factual background.

A. The Bankruptcy Case

On January 6, 2004, the Debtor filed a chapter 13 bankruptcy petition in this court. In Schedule A of his bankruptcy schedules, the Debtor listed ownership of three (3) properties in Philadelphia, PA. On Schedule D, the Debtor listed the City of Philadelphia (“the City”) as a secured creditor with respect to the three (3) properties for outstanding water and real estate tax debts. One of those properties is located at 1251 S. Ruby Street (“the Ruby Street Property”).

In 1997, more than six (6) years before the bankruptcy filing, the City transferred a portfolio of delinquent real estate tax liens to the Philadelphia Authority for Industrial Development (“PAID”), a public instrumentality of the Commonwealth of Pennsylvania. Some portion of the delinquent taxes on the Ruby Street Property was included in that portfolio, specifically, the taxes due in the period 1992–96 (“the 1992–96 Taxes”). Subsequent to the tax lien transfer, and most likely prior to the commencement of the Debtor's bankruptcy case, PAID transferred the portfolio to Wachovia Bank, as Trustee (“Wachovia”).³

The Debtor did not schedule either PAID or Wachovia as a creditor and neither entity had notice of his case. This is understandable in that the record does not reflect that he was given notice of the transfer of the City's tax claim to either of those third parties.

The following events occurred in the course of the chapter 13 plan confirmation process.

The Debtor filed his initial chapter 13 plan on January 20, 2004. (Bky No. 04–10175, Doc. # 7) He filed an amended plan on June 17, 2004, a second amended plan on September 20, 2004 and a third amended plan on November 10, 2004. ( Id., Doc. # 's 38, 57, 71). Significantly, the record does not reflect that the Debtor served the City with copies of any of the four (4) plans, as required by Local Bankruptcy Rules 3015–1(b) and 3015–2(a)(1). ( See id., Doc. # 's 38, 58, 71).⁴

On June 17, 2004, the Debtor filed an Amended Schedule D, ( id., Doc. # 37), disclosing that the City held a $10,000.00 claim secured by the Ruby Street Property for “water and real estate taxes,” incurred “1/05/86.”

Also on July 17, 2004, the Debtor filed Proof of Claim No. 5–1 (“Claim No. 5–1”) on behalf of the City, stating that the City held a $10,000.00 claim secured by the Ruby Street Property.⁵

Claim No. 5–1, which the Debtor certified he served upon the City, differed from his disclosures on Amended Schedule D in two (2) important respects, stating that:

(1) the basis for the claim was a “water and sewer bill;” ⁶ and

(2) the debt was incurred in December 2003.

Thus, nothing on the face of the claim indicated it was intended to encompass all of the outstanding taxes dating back to 1992 (or, in particular, the outstanding taxes from 1992–1996 that were transferred to PAID).

On February 22, 2005, this court confirmed the Debtor's Third Amended Plan (“the Confirmed Plan”). ( Id., Doc. # 's 71 & 92). The Confirmed Plan provided for payments to the chapter 13 trustee (“the Trustee”) of $445.00 for 49 months and for full payment of all allowed secured claims.⁷

On October 30, 2006, close to two (2) years after confirmation of the Confirmed Plan, the City inexplicably filed a late proof of claim, Proof of Claim 7–1 (“Claim No. 7–1”), asserting a secured claim in the amount of $47,945.25. Claim No. 7–1 may include various pre-petition taxes for the Ruby Street Property (other than the 1992–96 period), but the precise basis for the claim is not clear from the face of the document and attached computer printouts.⁸ What is certain, however, is that it was filed after the claims filing deadline, after the confirmation of the Debtor's Plan and that the Trustee made no distribution to the City on account of the claim. ( See id., Doc. # 127).

On July 31, 2009, the Trustee filed his Final Report. The Final Report indicates that the Debtor made all of the payments required by the Confirmed Plan and that the Trustee made distributions on two (2) allowed secured claims, one (1) for a total of $10,000.00 and the other for a total of $6,800.00. ( See id.). The $10,000.00 distribution corresponds to the allowed amount of Claim No. 5–1 (i.e., the proof of claim filed by the Debtor on behalf of the City relating to the Ruby Street Property). The $6,800.00 distribution corresponds to the allowed amount of Claim No. 4–1, also filed by the Debtor on behalf of the City, for a claim secured by a lien on one of the other properties listed in Schedule D of the Debtor's bankruptcy schedules.⁹

Shortly after the filing of the Trustee's Final Report, on September 3, 2009, this court granted the Debtor a discharge pursuant to 11 U.S.C. § 1328(a). The case was closed on September 8, 2009.¹⁰

B. The Sheriff's Sale Petition and the Debtor's Response thereto

Stepping back in the chronology for a moment, on November 18, 2005, approximately nine (9) months after confirmation of the Debtor's chapter 13 plan, Wachovia filed a Petition for a Rule to Show Cause in the Court of Common Pleas, Philadelphia County (“the CP Court”), seeking authority to sell the Ruby Street Property free and clear of all liens (“the Sheriff Sale Petition”). ( See Ex. B attached to U.S. Bank's Mot., Civ. Action No. 2:12–cv–1600 (“D.Ct. Case”), Doc. # 9).¹¹ According to the allegations in the Sheriff Sale Petition:

• the real estate taxes on Ruby Street Property were delinquent for the years 1992–1996 in the amount of $4,086.50 (including interest, fees, penalties and costs) (“the 1992–96 Taxes”);

• in June 1997, the 1992–96 Taxes were included in a portfolio of delinquent real estate tax liens that the City sold to PAID;

• PAID subsequently sold the portfolio to Wachovia;

• Wachovia was empowered to recover such delinquent taxes through the tax sale process.

( Id.).

In response to the Sheriff Sale Petition, on March 3, 2006, the Debtor faxed a letter notifying Wachovia's counsel that he had filed a bankruptcy on January 6, 2004 in the Eastern District of Pennsylvania. (U.S. Bank's Motion, Ex. D). Thereafter, the CP Court placed the Sheriff Sale Petition in suspense for the pendency of the bankruptcy case.

On May 31, 2011, approximately twenty (20) months after the Debtor's chapter 13 discharge, Wachovia resumed its efforts in the CP Court to subject the Ruby Street Property to a tax sale. On August 24, 2011, the Debtor filed a response to the Sheriff's Sale Petition in the CP Court.

C. The Federal Court Proceedings

1.

On May 3, 2012, almost another year after he filed his Answer to the Sheriff's Sale Petition in the CP Court, the Debtor filed a complaint (“the Complaint”) in the U.S. District Court for the Eastern District of Pennsylvania against five (5) defendants: (1) the City, (2) the School District of Philadelphia (“the School District”), (3) Wachovia, (4) PAID, and ARACOR Search & Abstract Services, Inc. (“ARACOR”). ( See D. Ct. Case, Doc. # 8).

The key allegations in the Complaint are that:

• PAID's action of selling the tax bond to Wachovia violated the automatic stay, 11 U.S.C. § 362, and also constituted an act of conversion, ( see Compl. ¶ 3–4);

• The tax obligations that PAID sold to Wachovia were fully paid through the chapter 13 plan, ( id., ¶ 5);

• Wachovia's filing the Sheriff Sale Petition back in November 2005 violated the automatic stay, ( id., ¶ 6); and

• Wachovia's post-discharge resumption of...