In re: PHILADELPHIA ENTERTAINMENT & DEVELOPMENT PARTNERS, LP d/b/a FOXWOODS CASINO PHILADELPHIA, Debtor. PHILADELPHIA ENTERTAINMENT & DEVELOPMENT PARTNERS, LP d/b/a FOXWOODS CASINO PHILADELPHIA 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. 17-1954
UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT
January 11, 2018
PRECEDENTIAL
On Appeal from the United States District Court for the Eastern District of Pennsylvania (D.C. Civ. No. 2-16-cv-01992) Honorable Joseph F. Leeson, Junior, District Judge
Submitted under Third Circuit L.A.R. 34.1(a) December 12, 2017
BEFORE: CHAGARES, RESTREPO, and GREENBERG, Circuit Judges
(Filed: January 11, 2018)
Jared D. Bayer Stephen A. Cozen F. Warren Jacoby Cozen O‘Connor 1650 Market Street One Liberty Place, Suite 2800 Philadelphia, PA 19103
Jennifer M. McHugh Cozen O‘Connor 200 Four Falls Corporate Center P.O. Box 800, Suite 400 West Conshohocken, PA 19428
Attorneys for Appellant
Richard A. Barkasy Albert S. Dandridge, III Bruce P. Merenstein Schnader Harrison Segal & Lewis 1600 Market Street Suite 3600 Philadelphia, PA 19103
Attorneys for Appellees
GREENBERG, Circuit Judge.
I. INTRODUCTION
Persil Mangeur LLC, (“Persil“), the Trustee of the Liquidation Trust established in debtor Philadelphia Entertainment and Development Partners, LP‘s (“PEDP“), Chapter 11 plan, appeals from a District Court order affirming a Bankruptcy Court order dismissing PEDP‘s adversary complaint against the Commonwealth of Pennsylvania and the Commonwealth of Pennsylvania Department of Revenue (together “Commonwealth“). We trace this case to 2006 when the Pennsylvania Gaming Control Board (the “Board“) awarded a slot machine license to PEDP, which paid a $50 million fee to the Commonwealth for the license. The Board, however, eventually revoked the license when PEDP failed to meet certain of its requirements for its maintenance. PEDP unsuccessfully appealed from the revocation order to the Pennsylvania Commonwealth Court, following which the Supreme Court of Pennsylvania denied
After the Pennsylvania courts upheld the revocation, thereby exhausting PEDP‘s remedies through state procedures to challenge the revocation, it filed a petition in bankruptcy. During the bankruptcy proceedings, it brought an adversary action against the Commonwealth alleging that the license revocation should be avoided because it was a fraudulent transfer under
II. BACKGROUND
The Pennsylvania Horse Racing Development and Gaming Act (the “Gaming Act“), provides for slot machine gaming in Pennsylvania.
In December 2006, the Board awarded a slot machine license to PEDP. App‘x 107¶ 14. PEDP paid the $50 million fee in October 2007, and the Board issued the license the next year. App‘x 108¶¶ 19-22. The Board required PEDP to open its facility and cоmmence operations by May 2009, but PEDP did not meet this deadline and has never opened the facility. App‘x 109 23-24. Nevertheless, the Board extended the deadline for opening the facility to May 2011, provided that PEDP satisfy nine conditions that the Board required it to meet at preset dates during the extension period, App‘x 109-10¶ 25-29. These conditions included requirements that PEDP submit financial and architectural documents and development plans to the Board. App‘x 110 ¶ 29. PEDP did not satisfy these conditions and unsuccessfully sought another extension to satisfy the requirements for the license. App‘x 110-12 30-41. In December 2010, the Board entered an order revoking PEDP‘s slot machine license by reason of PEDP‘s failurе to follow Board orders and demonstrate its financial suitability. App‘x 113¶ 42, 116 ¶ 60.
PEDP appealed from the revocation order to the Commonwealth Court of Pennsylvania. PEDP argued in the Commonwealth Court that the Board applied the wrong test for determining its financial suitability, the financial suitability requirements were unconstitutionally vague, and the Board denied PEDP due process of law for several reasons, one of which was a contention that forfeiture of the license for which PEDP had paid a $50 million fee was an excessive sanction to impose by reason of its failures to satisfy the Board‘s requirements. App‘x 851-52, 914-15.
The Commonwealth Court rejected PEDP‘s appeal and affirmed the Board‘s revocation
Two years later, on March 31, 2014, PEDP filed a petition in bankruptcy under
License was a transfer for which [PEDP] received no value from the Commonwealth....” App‘x 123¶ 97. Thus, in Count Four, PEDP sought recovery of what it claimed was a fraudulent transfer under
PEDP also asserted separate claims for turnover of the amount of the license fee that the Commonwealth did not return (Count One), for an unconstitutional taking (Count Five), and on theories that the Commonwealth had been unjustly enriched and PEDP was entitled to a recovery on the basis of promissory estoppel (Counts Six and Seven). We, however, are not concerned with counts One, Five, Six, and Seven on this appeal as their dismissal is not presently challenged.
In July 2014, the Bankruptcy Court confirmed PEDP‘s liquidation plan, which called for the creation of a liquidation trust supervised by Persil. App‘x 17-18. Persil as Trustee succeeded to all claims belonging to PEDP. App‘x 3; First Modified Chapter 11 Liquidation Plan 21-22, In re Phila. Entm‘t & Dev. Partners, LP, No. 14-12482, ECF No. 88 (Bankr. E.D. Pa. May 27, 2014).
On April 8, 2016, the Bankruptcy Court dismissed the adversary complaint. In re Phila. Entm‘t & Dev. Partners, LP, 549 B.R. 103, 110-11 (Bankr. E.D. Pa. 2016). The Bankruptcy Court found that the Rooker-Feldman doctrine divested it of subject matter jurisdiction to consider a claim for the avoidance of the license revocation. Id. at 111, 139. It stated,
the Rooker-Feldman Doctrine precludes the Trustee from attempting to challenge the prepetition revocation of the License. The Debtor lost in state court. To the extеnt the Trustee alleges that some interest in the License inured to the benefit of the estate, the Trustee would be complaining of injuries caused by the Revocation Order that was subsequently confirmed by the Commonwealth Opinion. The Revocation Order and the Commonwealth Opinion were entered prepetition. Finally, if this Court was to determine that the Debtor held an interest in the License or some right to be compensated for its value, this Court would necessarily be required to review the merits of the earlier state court decisions. Accordingly.. this Court is thereby prevented from addressing or otherwise modifying the prepetition revocation of the Debtor‘s interest in thе License.
Id. at 139 (emphasis removed).
The Bankruptcy Court then addressed the Trustee‘s claim for compensation for the value of the license. The Bankruptcy Court stated that a claim to undo the revocation and to obtain compensation for the revocation are “opposite sides of the same coin“; that is, the right to be compensated for the value of the license is the “functional equivalent” of the right to retain the license, a conclusion that led the Court to hold that the Rooker-Feldman doctrine barred any claim for the value of the license. Id. at 140-41.
The Bankruptcy Court also addressed the fraudulent transfer claim by treating the relevant transfer as thе Commonwealth‘s failure to refund the license fee after the revocation rather than the revocation of the license. Id. at 141-42. The Bankruptcy Court declined to decide whether the Rooker-Feldman doctrine barred this alternative reading of the claim because the Commonwealth Court had not explicitly addressed the question of whether PEDP was entitled to a refund of the license fee upon the license revocation. Id. at 142. But what the Bankruptcy Court did hold was that the refund theory failed to state a claim under
The District Court also held that the Bankruptcy Court correctly dismissed on the merits any part of the fraudulent transfer claim that application of the Rooker-Feldman doctrine did not bar. Id. at 400-01. It held that the Bankruptcy Court correctly determined that PEDP‘s only two transfers were the license fee payment in 2007 (the claim to repayment that was time-barred) and the loss of the license which it found occurred in 2012 (which claim the Rooker-Feldman doctrine barred from review). Id. at 401. The District Court agreed with the Bankruptcy Court that there had not been a “transfer” based on the Commonwealth‘s failure to pay PEDP $50 million after the revocation because nonpayment did not constitute a disposing of or parting with property. Id. The District Court entered its judgment on March 28, 2017. The Trustee timely appealed.
III. STATEMENT OF JURISDICTION AND STANDARD OF REVIEW
The Bankruptcy Court had jurisdiction to hear the adversary proceeding under
IV. DISCUSSION
On appeal, the Trustee challenges the Bankruptcy and District Courts’ conclusions that the Rooker-Feldman doctrine barred their review of PEDP‘s fraudulent transfer claims. The Rooker-Feldman doctrine deprives federal district and bankruptcy courts of jurisdiction “over suits that are essentially appeals from state-court judgments. . . .” Great W. Mining & Mineral Co. v. Fox Rothschild LLP, 615 F.3d 159, 165 (3d Cir. 2010); see In re Madera, 586 F.3d 228, 232 (3d Cir. 2009). There is some tension between the application of the Rooker-Feldman doctrine and the prosecution of avoidance claims under the Bankruptcy Code as an avoidance of a claim seems to authorize what the Rooker-Feldman doctrine prohibits—appellate review of state court judgments by federal courts other than the Supreme Court. See In re Knapper, 407 F.3d 573, 583 n.22 (3d Cir. 2005) (“In apparent contradiction to Rooker-Feldman theory, bankruptcy courts are empowered to avoid state judgments. . . .“) (quoting In re Gruntz, 202 F.3d 1074, 1079 (9th Cir. 2000) (en banc)). But we have noted that the Rooker-Feldman doctrine does not necessarily bar actions that properly are based on the Bankruptcy Code‘s fraudulent transfer statutes. See id. (rejecting “suggest[ion] that Rooker-Feldman bars an action that is properly based on
Our initial task is to identify the transfer on which the Trustee predicates its
The Trustee‘s position is consistent with the allegations in the adversary complaint that identify the license revocation as the operative transfer. App‘x 123¶ 97.3 In particular, the
Trustee does not contend that the revocation wаs illegal under the Gaming Act or violated due process of law. Rather, it contends that the Bankruptcy Code‘s avoidance rules imposed an independent obligation on the Commonwealth to pay some value when it revoked the license. Trustee‘s Opening Br. 18 (“[T]he federal courts may accept as a matter of fact and law that the License was revoked and is lost to the Debtor; the question here, however, is whether, under fraudulent transfer law, the Commonwealth must, but failed to, pay reasonably equivalent value for the Debtor‘s property interests which were transferred by way of such revocation. . . .“). But neither the Bankruptcy Court nor the District Court reviewed the merits of that argument as they concluded that the Rooker-Feldman doctrine barred such review. The Trustee argues that both Courts erred and that the Trustee is entitled to a merits determination of its claim that the license revocation was a fraudulent transfer. Accordingly, we turn to an analysis of that contention.
In Exxon Mobil Corp. v. Saudi Basic Industries Corp. the Supreme Court indicated that the federal courts had been
By asking the Bankruptcy Court to find that the license revocation was an avoidable fraudulent transfer, the Trustee did not invite that Court to “review and reject” the revocation order. See Great Western, 615 F.3d at 166. The “review and reject” requirement concerns whether the federal court must conduct “prohibited appellate review” of state-court decisions. Id. at 169. “Prohibited appellate review” means “a review of the proceedings already conducted by the ‘lower’ tribunal to determine whether it reached its result in accordance with law.” Id. (internal citation and quotation marks omitted).
Such a prohibited review differs from mere “attempts to litigate in federal court a matter previously litigated in state court....” Id. (quoting Exxon Mobil, 544 U.S. at 293, 125 S.Ct. at 1527). When the plaintiff attempts to litigate previously litigated matters, the federal court has jurisdiction “as long as the ‘federal plaintiff present[s] some independent claim,’ even if that claim denies a legal conclusion reached by the state court.” Id. (quoting Exxon Mobil, 544 U.S. at 293, 125 S.Ct. at 1527) (internal quotation marks omitted; altеration in original). In other words, if the federal court‘s review does not concern “the bona fides of the prior judgment,” the federal court “is not conducting appellate review, regardless of whether compliance with the second judgment would make it impossible to comply with the first judgment.” Id. (internal citation and quotation marks omitted). In that situation, the Rooker-Feldman doctrine would not apply because the plaintiff is not “complaining of legal injury caused by a state court judgment because of a legal error committed by the state court.” Id. (internal citation and quotation marks omitted).
The Trustee‘s fraudulent transfer claims did not ask the Bankruptcy Court to make an appellate review of the rеvocation order.
We recognize, as did the Bankruptcy Court, that the fraudulent transfer claims and the claims before the Commonwealth Court raised overlapping legal issues. But that circumstance did not mean that the Bankruptcy Court was required to reject or even review the Commonwealth‘s order for the Bankruptcy Court to decide whether thе license revocation was a fraudulent transfer. Consider, for example, the overlapping question of interest in the license. In deciding that the Board had authority to revoke the license, the Commonwealth Court considered whether PEDP had an interest in the license of which PEDP could not be deprived without due process of law. Phila. Entm‘t & Dev. Partners, 34 A.3d at 276. The Bankruptcy Court held, however, that if it “was to determine that the Debtor held an interest in the License ... this Court would necessarily be required to review the merits of the earlier state court decisions.” In re Phila. Entm‘t & Dev. Partners, 549 B.R. at 139. The Bankruptcy Court, however, did not explain why if it made that determination it would have been required to review the merits of the Commonweаlth Court decision, and we see no reason why it would have had to have done so.
The state and federal courts would address the similar question of property interest, but the Bankruptcy Court would not need to review the Commonwealth Court‘s decision to reach its conclusion. The Bankruptcy Court instead would apply its independent reading of the law governing whether PEDP had an interest in the license. That inquiry would not have implicated the Rooker-Feldman doctrine. As we explained in Great Western, a federal court can address the same
Our above conclusion brings us to the next question, which concerns the relief requested by the Trustee. In the adversary complaint, PEDP prayed for payment by the Commonwealth of the full value of the transfer. App‘x 123 104, 125 114.6 The Bankruptcy Court held that the Rooker-Feldman doctrine barred review of the fraudulent transfer claim because payment for the value of the license was the functional equivalent to invalidating the state court decision. We again disagree. Because the fraudulent transfer claim in the Bankruptcy Court was independent of the Gaming Act and due process claims previously advanced in the state court, it does not matter for Rooker-Feldman doctrine purposes that the relief that
the Trustee sought, if granted, would frustrate the Commonwealth Court‘s order. See Great Western, 615 F.3d at 169 (finding the Rooker-Feldman doctrine inapplicable to independent claims “regardless of whether compliance with the second judgment would make it impossible to comply with the first judgment“).
In reaching its contrary conclusion, the Bankruptcy Court relied on Maple Lanes, Inc. v. Messer, 186 F.3d 823 (7th Cir. 1999). But we conclude that that case is unpersuasive given the Supreme Court‘s refinements to the Rooker-Feldman doctrine after the court of appeals decided Maple Lanes. In that case, the plaintiff, Maple Lanes, lost its liquor license after the local sheriff told a newspaper that there had been drug sales in its liquor store. Maple Lanes unsuccessfully challenged the revocation in a state court. Maple Lanes then sued the sheriff in federal court for defamation under
In our view, the result in Maple Lanes does not comport with the Rooker-Feldman doctrine as it now is understood. The court of appeals decided Maple Lanes several years before the Supreme Court decided Exxon Mobil and a decade before we decided Great Western. It is clear that both Exxon Mobil and Great Western call
The same reasoning undоes the Bankruptcy Court‘s last conclusion. To support its argument that payment for the value of the license was the functional equivalent of returning the license, the Bankruptcy Court discussed apparently contradictory legal positions in the state and federal proceedings. The Bankruptcy Court noted that the Board and Commonwealth Court accepted PEDP‘s argument that it would not recoup any money after the revocation; but the Trustee now
claims a right to payment for the license because of the revocation. In re Phila. Entm‘t & Dev. Partners, 549 B.R. at 141. The Commonwealth keys in on this point as well, arguing that “it was clear to all involved in those proceedings that revoсation of PEDP‘s license would not entitle PEDP to return of any portion of its $50 million license fee. . . .” Commonwealth‘s Br. 19. But even if the Trustee has taken inconsistent positions before the different tribunals, “attempts merely to relitigate an issue determined in a state case are properly analyzed under issue or claim preclusion principles rather than Rooker-Feldman.” In re Miller, 666 F.3d 1255, 1261 (10th Cir. 2012).
In sum, the Trustee is not “complaining of an injury caused by the state-court judgment and seeking review and rejection of that judgment.” Exxon Mobil, 544 U.S. at 291, 125 S.Ct. at 1526. The Bankruptcy Court applied the Rooker-Feldman doctrine too broadly in finding that the fraudulent transfer claims require the federal courts to void the state court order. Acсordingly, we conclude that the Bankruptcy Court erred in holding that the Rooker-Feldman doctrine barred it from considering the Trustee‘s fraudulent transfer claims, and we will reverse its grant of dismissal as to Counts Two, Three, and Four of the adversary complaint.8
Usually, the final step in a Rooker-Feldman doctrine
analysis is to “apply state law to determine the preclusive effect of the prior state-court judgments.” Great Western, 615 F.3d at 173. Although the Commonwealth raised issue preclusion issues before the Bankruptcy Court, that Court did not address the argument and neither party has raised those issues on this appeal. And although the parties have briefed the merits of the fraudulent transfer
V. CONCLUSION
For the foregoing reasons, we will reverse the District Court‘s affirmance of the Bankruptcy Court‘s dismissal of the Trustee‘s fraudulent transfer claims in Counts Two, Three, and Four of the adversary complaint, which the Bankruptcy Court predicated on its belief that the federal courts lacked subject matter jurisdiction over the claims. We will remand the case for further proceedings to the District Court which, at its option, may decide the remaining issues that come before it on the remand or may, in turn, rеmand the matter to the Bankruptcy Court for further proceedings.