Philadelphia Entertainment & Development Partners, L.P. v. Pennsylvania Department of Revenue (In re Philadelphia Entertainment & Development Partners, L.P.)
549 B.R. 103
Bankr. E.D. Pa.2016Background
- Philadelphia Entertainment & Development Partners (the Debtor) paid a $50 million Category 2 slot license fee, later revoked by the Pennsylvania Gaming Control Board; fee was deposited into the State Gaming Fund.
- Debtor’s license was revoked by agency decision (Dec. 23, 2010) and that revocation was affirmed by the Commonwealth Court (Nov. 10, 2011). Debtor exhausted appellate remedies prepetition.
- Debtor filed chapter 11 (Mar. 31, 2014); post-confirmation the liquidation trustee (Persil Mangeur LLC) brought an adversary complaint seeking: turnover of the $50M fee (§ 542); avoidance/recovery of the revocation as fraudulent transfer (§§ 544, 548, 550); and three state-law claims (takings, unjust enrichment, promissory estoppel).
- Commonwealth defendants moved to dismiss, arguing (inter alia) sovereign immunity, the Rooker–Feldman bar, lack of pleaded transfers within look-back periods, and failure to state plausible claims.
- The bankruptcy court held it had core jurisdiction over the asserted bankruptcy causes but: sovereign immunity bars the state-law claims; Rooker–Feldman bars any attempt to relitigate or undo the prepetition license revocation; and the bankruptcy avoidance/turnover counts fail on the pleadings because no in-reach transfer within the look-back periods and the fee is disputed.
Issues
| Issue | Trustee's Argument | Commonwealth's Argument | Held |
|---|---|---|---|
| Scope of state sovereign immunity in bankruptcy (§ 106 v. ratification) | §106 or Constitution-based waiver allows suit; Katz supports waiver for bankruptcy matters | §106 cannot abrogate state immunity in 3d Circuit (Sacred Heart); waiver limited — only certain bankruptcy in rem/quasi-in-rem actions | §106 cannot be relied upon in this Circuit; Katz’s ratification analysis limited; court avoids resolving §106 constitutional issue and applies circuit precedent to bar state-law claims by sovereign immunity |
| Applicability of Rooker–Feldman to challenge of prepetition license revocation | Complaint seeks money (refund/value) rather than reversal; turnover/avoidance are distinct from state judgment | Trustee is a state‑court loser seeking relief that would negate the Commonwealth Court’s affirmation of revocation | Rooker–Feldman bars any claim that would review, reject, or effectively undo the prepetition revocation or its effects (including monetary recovery equivalent to license value) |
| Turnover (§ 542): is the $50M an undisputed estate asset? | Fee is estate property; reservation of rights and statutory interpretation support an entitlement to refund, so turnover proper | Fee was deposited into State Gaming Fund; license/fee forfeiture provisions apply; ownership disputed | § 542 dismissed — trustee has not pleaded an undisputed matured right to the fee; bona fide dispute prevents turnover relief (dismissed with prejudice) |
| Fraudulent-transfer avoidance (§§ 544/548) — timing and value | Revocation and exhaustion of appeals caused a transfer in 2012; transfer is avoidable; trustee alleges less than reasonably equivalent value | Transfer occurred when fee was paid (2007) and thus lies outside the statutory look-back; revocation adjudicated rights, not a later transfer; debtor received value (expected license) | § 544/548 claims fail: no transfer occurred within the statutory reachback (payment in 2007); and facts pleaded cannot show the debtor received less than reasonably equivalent value; counts dismissed with prejudice |
Key Cases Cited
- Central Virginia Community College v. Katz, 546 U.S. 356 (Sup. Ct.) (states’ ratification produced a limited waiver of sovereign immunity in bankruptcy)
- Edelman v. Jordan, 415 U.S. 651 (Sup. Ct.) (Eleventh Amendment bars money judgments against a State drawn from the state treasury)
- Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280 (Sup. Ct.) (Rooker–Feldman bars lower federal courts from reviewing state-court judgments)
- Granfinanciera, S.A. v. Nordberg, 492 U.S. 33 (Sup. Ct.) (fraudulent-transfer actions historically legal claims; jury rights implications)
- Langenkamp v. Culp, 498 U.S. 42 (Sup. Ct.) (proof of claim can subject creditor to equitable jurisdiction; impact on jury rights)
- Village of Rosemont v. Jaffe, 482 F.3d 926 (7th Cir.) (bankruptcy court lacks in rem power to enjoin state regulatory revocation of gaming license)
- In re Winstar Communications, Inc., 554 F.3d 382 (3d Cir.) (core/non-core bankruptcy jurisdiction analysis)
- Sacred Heart Hosp. of Norristown v. Pennsylvania (In re Sacred Heart Hosp. of Norristown), 133 F.3d 237 (3d Cir.) (§106 cannot abrogate state sovereign immunity in this Circuit)
- Executive Benefits Ins. Agency v. Arkison, 134 S. Ct. 2165 (Sup. Ct.) (fraudulent-transfer claims are non-core "related to" matters)