Philadelphia Entertainment & Development Partners, LP v. Commonwealth of Pennsylvania Department of Revenue
879 F.3d 492
| 3rd Cir. | 2018Background
- In 2006 the Pennsylvania Gaming Control Board awarded a slot-machine license to Philadelphia Entertainment and Development Partners, LP (PEDP); PEDP paid a $50 million license fee but never opened the facility and missed performance milestones. The Board revoked the license in 2010; the Commonwealth Court and the Pennsylvania Supreme Court denied PEDP relief.
- PEDP filed Chapter 11 in 2014; a liquidation trust was created and Persil Mangeur LLC (Trustee) succeeded to PEDP’s claims. The Trustee sued the Commonwealth seeking to avoid the license revocation as a constructive fraudulent transfer and to recover the license’s value (using the $50 million fee as a proxy).
- The Trustee’s operative claims were avoidance under 11 U.S.C. § 548(a)(1)(B) and § 544(b) (PUFTA), and recovery under §§ 550/551; other claims (turnover, takings, unjust enrichment, promissory estoppel) were not at issue on appeal.
- The Bankruptcy Court dismissed the fraudulent-transfer counts, concluding the Rooker–Feldman doctrine barred jurisdiction because the Trustee’s claim effectively sought to overturn the state-court revocation; it also held alternative theories (refund theory/time-bar) failed on the merits.
- The District Court affirmed. The Third Circuit reversed only on the Rooker–Feldman jurisdiction issue, holding the Trustee’s avoidance claim did not require prohibited appellate review of the state judgment and remanded for further proceedings (including preclusion, merits, and Eleventh Amendment questions).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Rooker–Feldman bars federal bankruptcy review of Trustee’s claim that the license revocation was a constructive fraudulent transfer | Trustee: claim is an independent avoidance action under §548/§544(PUFTA) seeking value for the transferred interest, not an appeal of the state revocation | Commonwealth: Trustee’s claim is an end-run around the state-court judgment; awarding value would effectively undo the revocation, so Rooker–Feldman bars it | Held: Rooker–Feldman does not bar the fraudulent-transfer claims because resolving them would not require the federal court to review the bona fides of the state-court judgment; reversal and remand for further proceedings |
| Whether seeking monetary recovery equivalent to the license value is functionally identical to reversing the state revocation (and thus barred) | Trustee: monetary relief for avoided transfer is distinct and permissible under bankruptcy avoidance powers | Commonwealth: awarding money would practically undo the revocation, so relief is barred | Held: Practical frustration of state judgment alone does not trigger Rooker–Feldman; monetary relief as avoidance remedy is not per se barred |
| Whether the Trustee’s pleaded transfer is the revocation (vs. payment/refund) and whether that affects jurisdiction | Trustee: operative transfer is the involuntary revocation of the license; remedy is recovery of the license’s value | Commonwealth: claims are actually time-barred refund/fee-payment claims or otherwise not transfers | Held: Court accepts that the complaint pleads the revocation as the transfer and analyzes jurisdiction on that basis; merits and time-bar/transfer questions remanded |
| Whether prior state-court adjudication precludes relief via claim/issue preclusion or Eleventh Amendment immunity | Trustee: asserts avoidance powers under federal bankruptcy law survive state adjudication | Commonwealth: raises preclusion and Eleventh Amendment defenses (sovereign immunity) | Held: Third Circuit did not decide preclusion or Eleventh Amendment issues; remanded for district court to address those defenses and the merits if necessary |
Key Cases Cited
- Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280 (2005) (limits Rooker–Feldman to cases seeking review/rejection of a state-court judgment)
- Great W. Mining & Mineral Co. v. Fox Rothschild LLP, 615 F.3d 159 (3d Cir. 2010) (articulates four-part test for Rooker–Feldman and distinguishes collateral federal claims)
- In re Fruehauf Trailer Corp., 444 F.3d 203 (3d Cir. 2006) (elements of constructive fraudulent-transfer claim under §548)
- Maple Lanes, Inc. v. Messer, 186 F.3d 823 (7th Cir. 1999) (holding monetary relief equal to license value functionally undid a state revocation; Court here questions its continued validity post-Exxon)
- In re Trans World Airlines, Inc., 145 F.3d 124 (3d Cir. 1998) (standard of review for legal conclusions in bankruptcy appeals)