IN RE: OTIS W. TERRY, JR.
MEMORANDUM AND/OR OPINION. SIGNED BY HONORABLE TIMOTHY J. SAVAGE ON 12/21/2015. 12/22/2015 ENTERED AND COPIES MAILED TO PRO SE, E-MAILED.(kp, )
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
IN RE: OTIS W. TERRY, JR.
(BANKRUPTCY NO. 13-14780)
December 21, 2015
The City of Philadelphia appeals from the bankruptcy court’s orders approving a
settlement between the debtor and the purchaser of the debtor’s real estate at a
Sheriff’s tax sale, and confirming the debtor’s Chapter 13 plan which enabled the debtor
to redeem his real estate. The City’s central contention is that the bankruptcy court’s
avoiding the Sheriff’s deed conveying the debtor’s property to the purchaser at the
Sheriff’s sale impermissibly allowed the debtor to redeem the property in contravention
of Pennsylvania law. The City contends that the avoidance deprived it of the transfer
tax paid on the Sheriff’s conveyance to the purchaser and the transfer tax that would
have been due on the purchaser’s conveyance back to the debtor.
The threshold issue is whether the City, a creditor whose claim has been paid in
full, can appeal the orders, which may, but not necessarily, affect its interest. We
conclude that because the orders have no direct and immediate impact on the City, it
lacks standing to appeal. Therefore, we shall dismiss the appeals.
Factual and Procedural Background
Debtor Otis W. Terry, Jr.’s real property, 7128 Mount Airy Place, Philadelphia
(“Property”), was sold at Sheriff’s sale to 2013 N. 16th St., LLC (“2013 LLC”) for
$120,000.00 on September 19, 2012. After 2013 LLC paid the bid price, the Sheriff
signed and delivered a deed conveying the Property to 2013 LLC on December 11,
After recording the deed, 2013 LLC filed a complaint in ejectment in the
Philadelphia Court of Common Pleas. Default judgment was entered on April 2, 2013.
The next day, 2013 LLC filed a praecipe for writ of possession.
To stave off ejectment, Terry filed a voluntary petition for relief under Chapter 13
of the Bankruptcy Code on May 30, 2013. Five days later, 2013 LLC filed a motion for
relief from the automatic stay to allow the ejectment process to continue. After holding
a hearing, the bankruptcy court denied the motion because it determined that Terry’s
right to redeem the Property had not yet expired. 2013 LLC filed a second motion on
October 7, 2013, arguing that Terry’s right of redemption had expired when he failed to
pay the redemption amount on or before September 12, 2013, the last day of the
redemption period under 53 P.S. § 7293. The bankruptcy court denied 2013 LLC’s
second motion. It held that Terry had exercised his right of redemption when he filed
his Chapter 13 Plan within the redemption period even though his proposed plan called
for payment of the redemption amount over time. 1
Terry and 2013 LLC filed a Stipulation of Settlement, requesting a consent order
designating 2013 LLC as the holder of an allowed claim for $125,624.66, secured by
Terry’s interest in the Property.
The stipulation called for the Sheriff to pay Terry
$64,000.00 from the sale proceeds.
From this amount, Terry was required to pay
$14,000.00 to 2013 LLC upon entry of the consent order, followed by forty-four monthly
payments of $1,200.00 to commence twenty days after confirmation of the plan. It also
See In re Terry, 505 B.R. 660, 668 (Bankr. E.D. Pa. 2014).
called for the bankruptcy court to order the Sheriff to turn over to Terry the balance of
the sale proceeds and to declare the Sheriff’s deed conveying the Property to 2013 LLC
void. The stipulation did not affect the Sheriff’s distribution to the City from the sale
At a hearing on its objection to the Stipulation of Settlement, the City argued that
the Rooker-Feldman doctrine divested the bankruptcy court of jurisdiction to grant the
relief sought in the Stipulation of Settlement. It also asserted that the bankruptcy court
could not enter the proposed consent order without joining the Sheriff. 2
The bankruptcy court determined that the Rooker-Feldman doctrine did not
apply. The court made clear that it was not reviewing or rejecting the judgment that
instigated the Sheriff’s sale. To moot the joinder issue, it directed removal from the
proposed consent order of any reference directing the Sheriff to take action. The court
entered a Consent Order, which incorporated the Stipulation of Settlement, with the
revised language, on September 18, 2014.
On February 6, 2015, the bankruptcy court entered an order (the “Confirmation
Order”) confirming the First Amended Chapter 13 Plan (the “Plan”) submitted on June
25, 2014. The Plan provided for payment in full of all allowed claims, including 2013
LLC’s claim, and the priority claims of the City and the Commonwealth of Pennsylvania
for unpaid taxes.
The City had moved to dismiss Terry’s Chapter 13 case on the basis that Terry’s
petition was filed in bad faith and that it constituted an impermissible exercise of Terry’s
The City also objected to Terry’s standing to seek the relief requested in the stipulation under §§
544 and 548 of the Bankruptcy Code. However, the bankruptcy court dismissed this objection summarily
because § 522(h) of the Code provides that Terry could avoid the transfer of the Property in the absence
of the Trustee’s doing so. In re Terry, 521 B.R. 90, 93 n.4 (Bankr. E.D. Pa. 2014).
redemption rights under Pennsylvania law.
It also argued that Terry’s death on
November 10, 2014 prevented confirmation of the Plan under Federal Rule of
Bankruptcy Procedure 1016. The bankruptcy court denied the motion on February 10,
The City appeals both the Consent Order and the Confirmation Order. With
respect to the Consent Order, the City reiterates its argument that the Rooker-Feldman
doctrine prevented the bankruptcy court from avoiding the transfer to 2013 LLC as
provided in the Stipulation of Settlement because it disturbed a state court judgment. It
also asserts that the bankruptcy court erred when it avoided the transfer of the Property
resulting from the tax sale under §§ 544 and 548 of the Bankruptcy Code.
With respect to the Confirmation Order, the City asserts that the Plan rests upon
an impermissible exercise of Terry’s redemption rights. It reasserts its arguments that
Terry’s petition was filed in bad faith and that the bankruptcy court should have
dismissed the case due to Terry’s death under Federal Rule of Bankruptcy Procedure
Standard of Review
A district court reviews a bankruptcy court’s “legal determinations de novo, its
factual findings for clear error, and its exercise of discretion for abuse thereof.” In re
Reilly, 534 F.3d 173, 175 (3d Cir. 2008) (citing In re Trans World Airlines, Inc., 145 F.3d
124, 130-31 (3d Cir. 1998)), rev’d on other grounds, Schwab v. Reilly, 560 U.S. 770
(2010). Where the bankruptcy court’s decision involves a mixed question of law and
fact, we must parse the factual and legal determinations, and then apply the appropriate
standard of review to each one. In re Montgomery Ward Holding Corp., 326 F.3d 383,
387 (3d Cir. 2003).
The bankruptcy court’s factual findings will not be disturbed unless they are
clearly erroneous. Stern v. Marshall, 131 S. Ct. 2594, 2611 (2011) (quoting Fed. R.
Bankr. P. 8013)); In re IT Grp., Inc., 448 F.3d 661, 667 (3d Cir. 2006); Fed. R. Bankr. P.
8013 Advisory Committee’s Note. A factual finding is clearly erroneous if the district
court is firmly convinced, based on all the evidence, that the bankruptcy court made a
mistake. Vento v. Dir. of V.I. Bureau of Internal Revenue, 715 F.3d 455, 468 (3d Cir.
2013) (citation omitted). The district court may not engage in independent fact finding.
Nantucket Investors II v. Cal. Fed. Bank, 61 F.3d 197, 210 n.19 (3d Cir. 1995) (citing 28
U.S.C. § 158(a)).
Standing to Appeal
Although the bankruptcy court accorded the City standing to object to the
stipulation of settlement and confirmation of the plan, we still must determine whether it
has standing to appeal the orders endorsing the settlement and confirming the plan.
The standing requirements at the bankruptcy court and the district court levels are
different. In re PWS Holding Corp., 228 F.3d 224, 249 (3d Cir. 2000) (quoting Kane v.
Johns-Manville Corp., 843 F.2d 636, 641-42 (2d Cir. 1988)). All debtors and creditors,
as the City was, are parties to every bankruptcy court order. But, status as a creditor
alone does not confer standing to appeal an order.
Only a “person aggrieved” by a bankruptcy court’s order may appeal.
Combustion Eng’g, Inc., 391 F.3d 190, 214 (3d Cir. 2004) (citing In re Dykes, 10 F.3d
184, 187 (3d Cir. 1993)). One qualifies as a “person aggrieved” if the order “diminishes
[the appellant’s] property, increases [its] burdens, or impairs [its] rights.” Id. (citing In re
PWS Holding Corp., 228 F.3d at 249). Thus, the City must demonstrate that it was
“directly and adversely affected pecuniarily” by the order. Id. (citing In re Dykes, 10
F.3d at 187) (footnote omitted).
More stringent than standing under Article III, standing to appeal in the
bankruptcy context is limited to those whose interests are directly affected.
Combustion Eng’g, 391 F.3d at 215 (citing Travelers Ins. Co. v. H.K. Porter Co., 45 F.3d
737, 741 (3d Cir. 1995)). In other words, the effect must be more than incidental or
The limitation recognizes that bankruptcy litigation often implicates the
interests of many persons who are not parties to the litigation. In re P.R.T.C., Inc., 177
F.3d 774, 777 (2d Cir. 1999). The bankruptcy standing requirement is necessary to
preclude those who are only indirectly affected by an order from appealing.
Combustion Eng’g, 391 F.3d at 215. Otherwise, any party could appeal, regardless of
whether it was directly, indirectly or tangentially affected. 10 Collier on Bankruptcy ¶
8003.03, p. 8003-4 (16th ed. 2015).
A party whose interest may be potentially, but not immediately and directly,
harmed has no standing to appeal. In re Combustion Eng’g, 391 F.3d at 215. Injury
that is speculative or remote does not confer standing. Travelers, 45 F.3d at 742; see
In re Barnet, 737 F.3d 238, 243 (2d Cir. 2013); In re Thorpe Insulation Co., 393 F. App’x
467, 470 (9th Cir. 2010). Similarly, a party who may suffer only “collateral damage”
from a bankruptcy ruling lacks standing. In re C.P. Hall Co., 750 F.3d 659, 661 (7th Cir.
2014) (party that would be injured as collateral result of settlement between debtor and
creditor lacked standing).
The City claims that it suffered injury as a result of the order avoiding the Sheriff’s
It asserts that it will have to refund the transfer tax originally paid on the
conveyance from the Sheriff to 2013 LLC, and it will not collect a transfer tax upon
conveyance of the Property from 2013 LLC to Terry.
Neither the Consent Order nor the Stipulation of Settlement addresses liability for
Although the Stipulation of Settlement included a request that the
bankruptcy court order that the tax sale was void, the bankruptcy court made clear that
it was not determining that the sale was void ab initio, but rather that it was avoiding the
deed and the resultant transfer to 2013 LLC. The proposed Consent Order was revised
to reflect this ruling.
The City contends that because the sale was not void ab initio, the transfer tax
paid on the Sheriff’s conveyance to 2013 LLC was properly paid and an additional
transfer tax is due on the reconveyance of the Property to Terry. The issue was not
properly before the bankruptcy court. Nor is it before the district court. Liability for the
transfer tax is addressed in another forum—the Philadelphia Tax Review Board. No
one can predict how, if at all, that forum will rule. Nor is it certain that anyone will
petition the Tax Review Board for relief.
The City has not suffered a direct injury. Instead, the injury, if any, is contingent.
2013 LLC has not filed a petition for a refund of the transfer tax paid on the transfer from
the Sheriff. The effect of the bankruptcy court’s orders on the City’s interest in the
transfer tax is speculative and remote. It is incidental. It is not direct.
As a creditor, the City was paid in full. The confirmed plan provided payment of
all the City’s claims, including the real estate taxes which resulted in the Sheriff’s sale.
Its status now is not as a creditor, but as a third party indirectly affected by the
Because the City did not suffer a direct and adverse pecuniary effect arising from
the bankruptcy court’s orders, it lacks standing to appeal. Therefore, we shall dismiss
Even if the City had standing, it would not prevail. We now explain why.
The Rooker-Feldman doctrine bars a federal court from entertaining “cases
brought by state-court losers complaining of injuries caused by state-court judgments
rendered before the district court proceedings commenced and inviting district court
review and rejection of those judgments.” Exxon Mobil Corp. v. Saudi Basic Indus.
Corp., 544 U.S. 280, 284 (2005).
In short, a federal court lacks subject matter
jurisdiction over an action in the nature of an appeal seeking to reverse a state court
decision. See id. at 293.
The doctrine applies only where: (1) the plaintiff in the federal action lost in state
court; (2) the plaintiff complains of injuries caused by the state-court judgment; (3) the
judgment was entered before the federal suit was filed; and (4) the plaintiff seeks
federal review and rejection of the state court judgment.
Great Western Mining &
Mineral Co. v. Fox Rothschild LLP, 615 F.3d 159, 166 (3d Cir. 2010) (citing Exxon
Mobil, 544 U.S. at 284). Factors two and four have been characterized as substantive;
and one and three, procedural. Hoblock v. Albany Cnty. Bd. of Elections, 422 F.3d 77,
85 (2d Cir. 2005). The procedural posture is rarely at issue. See id. at 89. The factors
that typically drive the inquiry are two and four, the substantive ones. They are key to
determining whether a federal suit brought by a state-court loser is barred by the
doctrine or presents a non-barred independent claim. Id. at 85-87.
Here, factors one and three are satisfied. Terry lost in the state court action
brought by the City to recover delinquent real estate taxes, and judgment was entered
before he filed his bankruptcy petition. Hence, we consider whether he seeks a remedy
for an injury caused by the state court judgment and whether his petition in bankruptcy
court was essentially a request to review and reject that judgment.
The judgment resulting in the tax sale is the source of Terry’s injuries. Had the
judgment not been entered, there would have been no forced sale of the Property and,
in turn, nothing to redeem. Therefore, the second factor is satisfied.
The fourth factor is not satisfied.
Terry did not ask the bankruptcy court to
overturn the state court judgment. Instead, he acknowledged that the judgment upon
which the Sheriff’s sale was premised was valid. He only requested the bankruptcy
court to enforce his rights under Pennsylvania law to redeem the Property. To grant
Terry relief, the bankruptcy court was not required to reject or disturb the state court
The bankruptcy court did not reject the state court judgment. On the contrary, it
gave effect to it. Although the Consent Order avoided the Sheriff’s deed, it did not
disturb the underlying judgment. 3 The judgment was satisfied. The City was paid the
full amount of the judgment from the purchase price paid by 2013 LLC. The avoidance
of the deed was the consequence of Terry’s exercising his right of redemption, an event
that occurred after the judgment had been satisfied.
Sept. 18, 2014 Consent Order, at ¶¶ 5-6 (Doc. No. 92, Bankr. No. 13-14780); see 7/21/14 Hr’g
Tr. at 17:24-25 (“I’m not about to make any finding that says that this is a void sale.”), 19:5-22.
Significantly, bankruptcy courts are empowered to avoid, modify and discharge
state court judgments under the Bankruptcy Code. In re Knapper, 407 F.3d 573, 583
n.22 (3d Cir. 2005) (citing In re Gruntz, 202 F.3d 1074 (9th Cir. 2000) (en banc)). Here,
even though it had the power to do so, the bankruptcy court did not reject or otherwise
disturb the judgment. It allowed Terry to redeem the property under Pennsylvania law.
When it did so, the bankruptcy court recognized and effectuated the state court
judgment. Thus, because Terry is not seeking review or rejection of the state court
judgment, the Rooker-Feldman doctrine does not apply.
Redemption of Property
For the first time on appeal, the City argues that when the bankruptcy court
confirmed the Plan, it allowed Terry to redeem the Property in contravention of
Pennsylvania law. Having failed to raise the issue in the bankruptcy court, it has waived
it. In re Kaiser Grp. Int’l Inc., 399 F.3d 558, 565 (3d Cir. 2005) (citing Buncher Co. v.
Official Comm. of Unsecured Creditors of GenFarm L.P. IV, 229 F.3d 245, 253 (3d Cir.
2000)). Nevertheless, even if the City had not waived the issue, its argument would fail.
State law determines the scope and nature of a debtor’s property interests.
Butner v. United States, 440 U.S. 48, 54-55 (1979).
Once those interests are
determined, a bankruptcy court has “broad authority to modify creditor-debtor
relationships” within the scope of its jurisdiction. United States v. Energy Res. Co., 495
U.S. 545, 549 (1990).
Pennsylvania’s Municipal Claim and Tax Lien Act (“MCTLA”), 53 P.S. §§ 71017505, provides that property sold at a tax sale may be redeemed within nine months
from the date of the acknowledgment of the Sheriff’s deed. 53 P.S. § 7293(a). Section
7293 “is to be liberally construed so as to effect its object and to promote justice.” City
of Phila. v. Taylor, 465 A.2d 33, 35 (Pa. Super. 1983). The MCTLA provides that the
purchaser at a tax sale takes “absolute title to the property sold.” 53 P.S. § 7283(a).
However, the purchaser’s title does not become absolute until the redemption period
expires. Hess v. Potts, 32 Pa. 407, 410-11 (1859); Shalemiller v. McCarty, 55 Pa. 186,
188 (1867); City of Phila. v. Miller, 126 A.2d 812, 815 (Pa. Super. 1956). In other
words, the purchaser acquires a defeasible title, subject to the debtor’s equitable right of
redemption during the redemption period. In re Hammond, 420 B.R. 633, 635 (Bankr.
W.D. Pa. 2009); Hess, 32 Pa. at 410-11. The debtor’s equitable interest in the property
inures to the benefit of the bankruptcy estate. See 11 U.S.C. § 541(a).
Contrary to the City’s contention, § 7293 does not require that the redemption
amount be paid in full before the expiration of the redemption period. City of Phila. v.
Chin, 535 A.2d 110, 112 (Pa. Super. 1987); Taylor, 465 A.2d at 35. Rather, § 7293
requires only “that the redemptor begin the redemption process” within the time
provided by the statute. Chin, 535 A.2d at 112 (citing Taylor, 465 A.2d at 35).
The City’s reliance on City of Philadelphia v. Keilyk, 551 A.2d 1094 (Pa. Super.
1988), is misplaced. There, one co-owner attempted to redeem only his proportionate
share of the property. 551 A.2d at 1096. The court held that a property may not be
redeemed by payment of less than the entire redemption amount. Id. It did not hold
that the full amount must be paid within nine months. Here, unlike in Keilyk, the Plan
provides for payment, albeit over time, of the entire redemption amount.
The redemption period began running on December 11, 2012, the date the
Sheriff executed and acknowledged the deed conveying the Property to 2013 LLC.
Terry had until September 13, 2013 to redeem the Property. He filed his proposed plan
on June 13, 2013, which is within the nine-month redemption period. Thus, because
Terry exercised his right of redemption within the nine-month redemption period on
terms acceptable to the purchaser at the Sheriff’s sale, the bankruptcy court did not err
in confirming the Plan.
The City’s argument that it was denied an opportunity to be heard on the
redemption issue is meritless. The City filed an objection to confirmation on September
29, 2014. At the hearing on February 6, 2015, the City could have, but did not, raise the
Avoidance of Sheriff’s Deed
The City argues that the bankruptcy court’s avoidance of the Sheriff’s transfer to
2013 LLC was impermissible under §§ 544(a)(3) and 548(a)(1) of the Code. The City
asserts that the bankruptcy court improperly avoided the transfer of the Property
pursuant to §§ 544 and 548 without conducting an evidentiary hearing.
Like the redemption issue, the City has waived its right to complain about the
lack of an evidentiary hearing on the avoidance issue. In its objection to the Stipulation
of Settlement, the City raised three issues: the Rooker-Feldman doctrine; failure to join
a required party, the Sheriff; and whether Terry could exercise the trustee’s avoidance
powers under § 522(h). It did not contend that the avoidance was impermissible under
§§ 544 and 548.
A bankruptcy court is required to hold an evidentiary hearing only when a party
objects to a proposal. In re Pa. Gear Corp., No. 04-5101, 2005 WL 615750, at *2 (E.D.
Pa. Mar. 11, 2005) (citing In re RFE Indus., Inc., 283 F.3d 159, 165 (3d Cir. 2002); In re
Martin, 91 F.3d 389, 393 (3d Cir. 1996)). The City never requested an evidentiary
hearing. At the July 21, 2014 hearing, 4 it did not argue why §§ 544 and 548 did not
apply. Therefore, because it did not raise the avoidance issue, the City waived it.
The City asserts that Terry, who had no pre-petition debt, filed his Chapter 13
petition to circumvent the redemption requirements under the MCTLA. Thus, it argues,
Terry filed his bankruptcy petition in bad faith.
Terry’s lack of pre-petition debt, in itself, does not demonstrate bad faith. The
Bankruptcy Code does not bar a solvent debtor from filing for bankruptcy protection. In
re Integrated Telecom Express, Inc., 384 F.3d 108, 121 (3d Cir. 2004) (citing In re SGL
Carbon Corp., 200 F.3d 154, 163-64 (3d Cir. 1999)).
The debtor need only be in
“financial distress.” Id. Given the circumstances leading to the tax sale, one could
reasonably conclude that Terry was financially distressed. Therefore, the bankruptcy
court did not abuse its discretion in refusing to dismiss the case for bad faith. 5
Rule 1016 provides that as a result of the death or incompetency of the debtor in
a Chapter 13 case, “the case may be dismissed; or if further administration is possible
and in the best interest of the parties, the case may proceed and be concluded in the
same manner, so far as possible, as though the death or incompetency had not
Fed. R. Bankr. P. 1016 (emphases added).
A bankruptcy court may
See, e.g., 7/21/14 Hr’g Tr. at 7:8-8:10; 28:23-29:7; 29:18-24; 32:18-33:19; 33:20-34:9; 36:8-
The City also argues, without citing any authority, that Terry’s “treatment of creditors” indicates
bad faith. Because the City did not include this argument in its objection to confirmation, we do not
address it here.
continue with the proceedings after the debtor’s death. See, e.g., In re Querner, 7 F.3d
1199, 1200-01 & n.1 (5th Cir. 1993); In re Fogel, No. 14-1851, --- B.R. ----, 2015 WL
5032055, at *2 (D. Colo. Aug. 26, 2015).
Here, the bankruptcy court found that the Plan provided for payment in full to the
creditors and was not dependent on Terry’s income. 6
In addition, as the parties
stipulated, Terry’s sister, Patricia Terry, has been making the $1,200.00 monthly
payments required by the Plan since Terry’s death. 7 Under these circumstances, there
is no basis for finding that the bankruptcy court abused its discretion in allowing the
case to proceed under Rule 1016.
Because the City did not suffer a direct and adverse pecuniary injury, it has no
standing to appeal the bankruptcy court orders approving the settlement between Terry
and 2013 LLC and confirming Terry’s Chapter 13 Plan. Therefore, we shall dismiss the
In re Terry, No. 13-14780, 2015 WL 1321486, at *4 (Bankr. E.D. Pa. Mar. 13, 2015).
Id. at *2; see 2/6/15 Hr’g Tr. at 49:22-50:9.
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