Wilmington Tr. v. Pavilion Apartments Penn LLC

• Decision Date: 17 April 2023
• Docket Number: Civil Action 22-3985
• Parties: WILMINGTON TRUST, NATIONAL ASSOCIATION, AS TRUSTEE OF THE $29,615,000 PHILADELPHIA AUTHORITY FOR INDUSTRIAL DEVELOPMENT SENIOR HOUSING REVENUE BONDS (THE PAVILION), Plaintiff, v. PAVILION APARTMENTS PENN LLC and KIRYAT GREENBRIAR, L.P., Defendants. KIRYAT GREENBRIAR, L.P., Cross-Plaintiff, v. PAVILION APARTMENTS PENN LLC, Cross-Defendant.
• Court: U.S. District Court — Eastern District of Pennsylvania

1

WILMINGTON TRUST, NATIONAL ASSOCIATION, AS TRUSTEE OF THE $29,615,000 PHILADELPHIA AUTHORITY FOR INDUSTRIAL DEVELOPMENT SENIOR HOUSING REVENUE BONDS (THE PAVILION), Plaintiff, v. PAVILION APARTMENTS PENN LLC and KIRYAT GREENBRIAR, L.P., Defendants.

KIRYAT GREENBRIAR, L.P., Cross-Plaintiff, v. PAVILION APARTMENTS PENN LLC, Cross-Defendant.

Civil Action No. 22-3985

United States District Court, E.D. Pennsylvania

April 17, 2023

MEMORANDUM

GERALD J. PAPPERT, J.

Wilmington Trust, N.A., as Trustee of the $29,615,000 Philadelphia Authority for Industrial Development Senior Housing Revenue Bonds, moved for leave to file a second amended complaint adding claims for statutory avoidance of transfers and veil piercing and naming Aloft Mgt., LLC; PF Holdings, LLC; and Aron Puretz as defendants. The Proposed Second Amended Complaint does not allege sufficient facts to show that the new defendants have either an ownership interest in Pavilion or that they are under substantially common ownership with Pavilion so the veil piercing claims are futile. Leave to amend is granted as to all other claims.

I

The Court explained the relationship between Wilmington Trust and Pavilion in its January 13, 2023, Receivership Opinion:

Wilmington Trust is the trustee under a July 1, 2016, Trust Indenture between the Philadelphia Authority for Industrial Development (“PAID”) and Wilmington Trust. (Ex P-101). PAID issued two series of Senior Housing Revenue Bonds, in a principal amount totaling $29,615,000, which PAID loaned to Pavilion for use in acquiring a leasehold interest in, renovating, and operating a low-income senior housing project (the “Project”). (Hrg. Tr. 29-32, ECF 43.) The Project, known as the Pavilion Apartments, is a 295-unit apartment building in Philadelphia. (Id. at 30:11-14.) It is situated on land owned by Kiryat Greenbriar and Pavilion has a long-term leasehold interest in the land under a ground lease with Greenbriar. (Id. at 102:22-103:1.)

.... To evidence the loan, PAID and Pavilion signed a loan agreement, (Ex. P-102), and Pavilion executed a Multifamily Promissory Note, (Ex. P-103), in favor of PAID, which PAID then assigned to Wilmington Trust. The Note is secured by a Leasehold Mortgage on Pavilion's interest in the leasehold estate and the Project, in favor of Wilmington Trust. (Hrg. Tr. 37; Ex. P-104 at 2.) The bonds are paid from the project revenues, which Pavilion must remit to Wilmington Trust each month. (Hrg. Tr. 29:17-30:6.) . . . [A]ll the loan documents are cross-defaulting-a default under one is a default under the others. (Id. at 44.) Additionally, a default under the ground lease is also a default under the leasehold mortgage and loan agreement. (Id. at 43-44.)

(ECF 49, at 1-2.)^[1] Wilmington Trust filed this lawsuit against Pavilion to foreclose on the Leasehold Mortgage, alleging defaults under the loan documents. (ECF 1.) In a separately filed action, it brought breach of contract and accounting claims against Pavilion and Greenbriar, and claims for breach of the covenant of good faith and fair dealing and declaratory judgment against Greenbriar. (No. 22-3987, ECF 1.) The actions were later consolidated by agreement of the parties. (Am. Compl., No. 22-3985, ECF 25.) The Court appointed a receiver to manage the mortgaged property in January of 2023. (ECF 45, 49.)

Wilmington Trust now moves to amend its Amended Complaint to allege additional breaches of the loan terms by Pavilion;^[2] to add claims under the Pennsylvania Uniform Voidable Transactions Act against Aloft, PF Holdings, and Aron Puretz; and to pierce the corporate veil to hold Aloft, PF Holdings, Aron Puretz and other entities liable for any judgment entered against Pavilion. (ECF 71.)

II

A party may amend its pleading once as a matter of course, and subsequently “only with the opposing party's written consent or the court's leave.” Fed. R. Civ. Proc. 15(a). A court should “freely give leave [to amend] when justice so requires,” Fed. R. Civ. Proc. 15(a)(2), but may deny leave “if it is apparent from the record that (1) the moving party has demonstrated undue delay, bad faith or dilatory motives, (2) the amendment would be futile, or (3) the amendment would prejudice the other party.” Fraser v. Nationwide Mut. Ins. Co., 352 F.3d 107, 116 (3d Cir. 2003).

There is no suggestion that Wilmington Trust engaged in dilatory conduct. Nor would amendment prejudice Pavilion: The Trustee alerted the Court and the defendants to its intention to seek leave to amend at the Rule 16 conference, and it appears that the type of information Pavilion would have to produce relating to the new claims is not substantially broader than Pavilion's existing obligation to produce materials to the Receiver. See DLJ Mortg. Capital, Inc. v. Sheridan, 975 F.3d 358, 369-70 (3d Cir. 2020).

In assessing futility, the Court applies the same standard as it would under a motion to dismiss for failure to state a claim under Rule 12(b)(6). In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1434 (3d Cir. 1997). First, the Court “must accept all of the [proposed amended] complaint's well-pleaded facts as true, but may disregard any legal conclusions.” Fowler v. UPMC Shadyside, 578 F.3d 203, 210-11 (3d Cir. 2009). Then, it “must determine whether the facts alleged in the [proposed amended] complaint are sufficient to show that the plaintiff has a ‘plausible claim for relief.'” Id. at 211 (quoting Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009)). The Court must “construe the [proposed amended] complaint in the light most favorable to the plaintiff ....” Phillips v. Cnty. of Allegheny, 515 F.3d 224, 235 (3d Cir. 2008).

III

Pavilion objects to the Proposed SAC on the grounds that under the Pennsylvania Rules of Civil Procedure, “[a]n action in mortgage foreclosure is strictly an in rem action and cannot include an in personam action to enforce personal liability.” Insilco Corp. v. Rayburn, 543 A.2d 120, 123 (Pa. Super. Ct. 1988); Pa. R. Civ. Proc. 1141(a).^[3] This limitation, however, is waived if the mortgagor (in this case, Pavilion) fails to object to the inclusion of an in personam action in the mortgage foreclosure proceeding. Id. Wilmington Trust's original Complaint (No. 22-3985, ECF 1) included only a claim for mortgage foreclosure; the contract-related claims were filed in a separate action (No. 22-3987, ECF 1), in compliance with Pennsylvania Rule 1141. During a telephone conference with the Court on December 1, 2022, counsel for Wilmington Trust, Kiryat Greenbriar, and Pavilion all agreed, for reasons of efficiency and economy, that Wilmington Trust would voluntarily dismiss Case No. 22-3987 and amend its complaint in Case No. 22-3985 to include both the mortgage foreclosure and contract-related claims. (No. 22-3985, ECF 23-25; No. 22-3987, ECF 23-25.) Pavilion did not object to this course of action during the telephone conference or in its Answer to Wilmington Trust's Amended Complaint. (No. 22-3985, ECF 28.) Pavilion waived its objection to combining the actions, and it would be inequitable to do otherwise now. Even if Pavilion had not consented to combining the actions, the Court would exercise its discretion under Federal Rule of Civil Procedure 42(a) to consolidate them. See Delaware Tr. Co. v. Lal, No. 96-5783, 1997 WL 230805, at *3 (E.D. Pa. Apr. 30, 1997).

IV

Pennsylvania's Uniform Voidable Transfers Act (PUVTA) provides that a transfer by a debtor is voidable as to a creditor^[4] if the debtor made the transfer

(1) with actual intent to hinder, delay or defraud any creditor of the debtor; or (2) without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor:

(i) was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or

(ii) intended to incur, or believed or reasonably should have believed that the debtor would incur, debts beyond the debtor's ability to pay as they became due.

12 Pa.C.S. § 1504(a).

Wilmington Trust alleges that Pavilion made improper transfers to over a dozen “affiliate[d]” entities since 2021, mostly in the form of bank transfers designated on Pavilion's financial statements as “loans” but unsupported by any loan documentation or agreements. However, only Aloft, PF Holdings and Aron Puretz are named in the proposed PUVTA claim (proposed Count Eight). (Proposed SAC ¶¶ 156-68, ECF 71-2.) The bulk of the transfers allegedly made by Pavilion since 2021 have already been recovered and therefore cannot support a PUVTA claim, because no further relief is available. 12 Pa.C.S. § 5107(a). But the Proposed SAC identifies three categories of unrecovered transfers: unspecified amounts paid to Aloft as management fees; $55,000 transferred to PF Holdings; and an undetermined amount of cash taken from the laundry vending machines by Aron Puretz. (Proposed SAC ¶ 160.) Additionally, it alleges on information and belief that Pavilion made transfers to its “affiliates” prior to 2021, which have not been recovered. (Id. ¶ 86.)

A

A plaintiff who lacks direct evidence of actual intent to hinder, delay or defraud may prove a § 5104(a)(1) claim by circumstantial evidence. Chestnut St. Consol., LLC v Dawara, No. 21-3046, 2022 WL 3051830, at *10 (E.D. Pa. Aug. 3, 2022). The PUVTA lists eleven factors, or “badges of fraud,” which may indicate such intent:

(1) the transfer . . . was to an insider; (2) the debtor retained possession or control of the property transferred after the transfer; (3) [whether] the transfer . . . was disclosed or concealed; (4) before the transfer was made . . ., the debtor had been sued or threatened with suit; (5) the transfer was of substantially

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