IN RE: EARL WILSON

Filing 13

MEMORANDUM AND/OR OPINION SETTING FORTH THE REASONS WHY THE COURT IS AFFIRMING THE BANKRUPTCY COURT'S FINDING IN THIS MATTER. AN APPROPRIATE ORDER FOLLOWS.. SIGNED BY HONORABLE GENE E.K. PRATTER ON 12/27/16. 12/28/16 ENTERED AND COPIES E-MAILED.(rab, ) .

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
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IN RE: EARL WILSON

PRATTER, J.

CIVIL ACTION No. 15-6385

(BANKRUPTCY No. 14-12720)

DECEMBER 27, 2016

MEMORANDUM
Debtor, Earl Wilson, filed a Chapter 13 bankruptcy petition in the United States
Bankruptcy Court for the Eastern District of Pennsylvania. The City of Philadelphia (“City”)
appeals the Bankruptcy Court’s Order confirming Mr. Wilson’s Revised Fifth Amended Chapter
13 Plan (the “Plan”). After considering the briefs and the record on appeal, the Court will
(i) affirm the Bankruptcy Court’s finding that the City lacked standing to object to the provision
of the Plan permitting Mr. Wilson to pay the redemption amount over the term of the Plan and
(ii) dismiss the City’s appeal of all other issues for lack of bankruptcy appellate standing.
I.

FACTUAL AND PROCEDURAL HISTORY
Mr. Wilson owned property in Philadelphia, located at 4507 North 17th Street (“the

Property”), which was sold by the Philadelphia Sheriff’s Office pursuant to the Pennsylvania
Municipal Claims and Tax Lien Act (“MCTLA”) to collect unpaid real estate taxes. Skyy
Realty, LLC (the “Purchaser”) purchased the Property for $7,900 after submitting the winning
bid at a sheriff’s sale. The deed was acknowledged on February 14, 2014. Thereafter, the
Purchaser sold the Property to Jamal and Sharon Hicks (the “Subsequent Purchasers”).
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Mr. Wilson filed a voluntary Chapter 13 bankruptcy on April 7, 2014. Mr. Wilson,
initially acting pro se, filed two Chapter 13 plans that made no mention of redeeming the
Property and did not identify the Purchaser as a secured creditor. Subsequently, however, Mr.
Wilson retained counsel and filed an amended plan on September 10, 2014 that identified the
Purchaser as a secured creditor and himself as the holder of a right of redemption with regard to
the Property. Mr. Wilson then filed a secured claim on behalf of the Purchaser in the amount of
$3,000, which Mr. Wilson argued was the redemption amount. The City filed three secured
claims in the bankruptcy proceeding totaling $2,741.42, all of which related to a different
property parcel in Philadelphia owned by Mr. Wilson.
After two amended plans were rejected by the Bankruptcy Court for reasons not relevant
to this appeal, Mr. Wilson filed a Fourth Amended Plan, to which the City raised several
objections. The Bankruptcy Court held a confirmation hearing on the Fourth Amended Plan,
which the City, Mr. Wilson, one of the Subsequent Purchasers, and a representative of the
Purchaser attended. At that hearing, the Bankruptcy Court determined that (i) the City had
standing to object to Mr. Wilson’s redemption of the Property on the basis that it did not meet
the requirements of the MCTLA and (ii) the Fourth Amended Plan was not confirmable because,
pursuant to state law, Mr. Wilson was not entitled to title to the Property until after he had paid
the redemption amount in full. The Bankruptcy Court determined, however, that the Bankruptcy
Code allows for the redemption price to be paid over the course of the plan period. Ultimately,
the Bankruptcy Court did not confirm the Fourth Amended Plan because of concerns regarding
the redemption amount and the provision providing for transfer of title upon the plan’s
confirmation.

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Following hearings on the Fourth Amended Plan, Mr. Wilson filed a Fifth Amended
Plan. The City raised two additional objections to the Fifth Amended Plan, arguing that the plan
(i) contained language that purported to cause the waiver of all of the City’s unfiled claims and
(ii) was proposed in bad faith because it still required transfer of title to the Property upon plan
confirmation and because paying the redemption amount over the life of the plan was
inconsistent with Pennsylvania law. 1 The Bankruptcy Court sustained the City’s objection as to
the treatment of its unfiled claims finding that the claims were exempted from discharge pursuant
to § 523(a)(1) of the Bankruptcy Code. The Bankruptcy Court also agreed with the City that the
plan’s requirement that the Property be conveyed to Mr. Wilson upon confirmation was
impermissible. The Bankruptcy Court found that the MCTLA specifically requires the
redemption amount be paid in full prior to re-conveyance. The Bankruptcy Court, however,
denied the City’s objection to the extent the City challenged Mr. Wilson’s right to stretch out
repayment of the redemption amount over the life of the plan.
Mr. Wilson revised the Fifth Amended Plan to account for the Bankruptcy Court’s
rulings. The Revised Fifth Amended Plan provided for the City’s secured claims to be paid in
full and also removed the ambiguous language as to the City’s unfiled claims. The Bankruptcy
Court confirmed the Plan over the City’s objection as to the Plan’s provision allowing Mr.
Wilson to repay the redemption amount over the life of the Plan. Pursuant to Local Bankruptcy

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Neither the Purchaser nor Subsequent Purchaser objected to the Fifth Amended Plan or
appeared for the confirmation hearing on the Fifth Amended Plan. Accordingly, the Bankruptcy
Court deemed the Purchaser and Subsequent Purchaser to have accepted the Fifth Amended Plan
pursuant to a prior Order of the Bankruptcy Court. See October 16, 2015 Bankruptcy Court
Order, Bankruptcy No. 14-12720, Doc. No. 113.
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Rule 8001-1(b), the Bankruptcy Court issued a Memorandum Opinion in support of its bench
ruling.
II.

LEGAL STANDARDS
On appeal, district courts review the bankruptcy court’s legal determinations de novo, its

factual findings for clear error, and its use of discretion under the abuse of discretion standard.
In re Trans World Airlines, Inc., 145 F.3d 124, 131 (3d Cir. 1998). A district court will not
disturb a bankruptcy court’s factual findings unless they are clearly erroneous. Stern v.
Marshall, 564 U.S. 462, 487 (2011) (citing Fed. R. Bankr. P. 8013). A factual finding is clearly
erroneous only if the district court is firmly convinced that a mistake was made. Vento v. Dir. of
V.I. Bureau of Internal Revenue, 715 F.3d 455, 468 (3d Cir. 2013) (citation omitted). This Court
has jurisdiction to review the Bankruptcy Court’s decision pursuant to 28 U.S.C. §§ 158(a)(1)
and 1334.
III.

DISCUSSION
A.

The City’s Standing on Appeal

The Court must first address whether the City has standing to appeal from the Bankruptcy
Court’s ruling. Article III’s standing requirement mandates only that an appellant’s injury be
“fairly traceable to the alleged illegal action.” In re Congoleum Corp., 426 F.3d 675, 685 (3d
Cir. 2005). The standing requirement in bankruptcy appeals, however, is more restrictive.
The more stringent bankruptcy appellate standing requirement rests on the “particularly
acute” need to limit appeals in bankruptcy proceedings, which often involve a “myriad of parties
indirectly affected by every bankruptcy court order.” In re Combustion Eng’g, Inc., 391 F.3d
190, 215 (3d Cir. 2004) (quoting Traveler’s Ins. Co. v. H.K. Potter Co., Inc., 45 F.3d 737, 741
(3d Cir. 1995)). For this reason, bankruptcy appellate standing is limited to “persons aggrieved”
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by an order of the bankruptcy court. Id. at 214 (citing Gen’l Motors Acceptance Corp. v. Dykes,
10 F.3d 184, 187 (3d Cir. 1993)). The “persons aggrieved” standard is met only by persons
“whose rights or interests are ‘directly and adversely affected pecuniarily’” by an order of the
bankruptcy court. Id. (citations omitted). The party seeking appellate standing must show the
order of the bankruptcy court “diminishes their property, increases their burdens, or impairs their
rights.” In re PWS Holding Corp., 228 F.3d 224, 249 (3d Cir. 2000) (citation omitted). Thus, a
party who suffers only potential harm or collateral damage from a bankruptcy court order lacks
bankruptcy appellate standing. In re Terry, 543 B.R. 173, 178 (E.D. Pa. 2015).
The City argues that it has bankruptcy appellate standing because the Bankruptcy Court’s
order will deprive it of tax revenues in three ways. First, the City argues that allowing
redemption through the Plan will diminish its ability to use sheriff’s sales as a means of
generating revenue and putting properties back on the productive tax rolls. Second, the City
argues that confirming the Plan will increase uncertainty of ownership after a sheriff’s sale which
creates the possibility that fewer parties will place bids at sheriff’s sales. Third, the City argues
that allowing Mr. Wilson to redeem the property without a proven readiness to pay the
redemption amount puts property back into the hands of an owner with a proven inability to
afford his tax obligations and without assurance that Mr. Wilson will pay taxes assessed on the
Property in the future.
A party must establish more than a potential or speculative injury to its pecuniary
interests in order to have standing to appeal an order of the bankruptcy court. Traveler’s, 45
F.3d at 742 (finding a party lacked bankruptcy appellate standing because the appellant’s
purported injury was “at least two steps removed from any possible diminution of its property”).

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Here, the City has not demonstrated anything more than a potential or speculative injury
contingent upon events that have not happened and may never happen.
First, the City’s property was not diminished by the Plan’s confirmation because the Plan
provides for full payment of its secured claims and the City’s unfiled claims are not subject to
discharge. See 11 U.S.C. § 523(a)(1). Therefore, it has not suffered any direct pecuniary harm
in this proceeding.
Second, any alleged injury based on a decline in tax revenue as a result of damage to the
sheriff’s sale process is purely speculative. As in Traveler’s, this alleged injury is two steps
removed from the Bankruptcy Court’s order: fewer investors would have to participate in
sheriff’s sales and that participation decline would have to lead to the City selling tax delinquent
properties for less than they otherwise would have.
Third, any future harm to the City’s tax revenue due to non-payment by Mr. Wilson is
contingent upon his failure to pay future real estate taxes. This alleged injury is based on mere
speculation that Mr. Wilson will not pay real estate taxes in the future and that the Subsequent
Purchaser will continue to pay real estate taxes. Accordingly, the Court determines that the City
lacks bankruptcy appellate standing to challenge the Bankruptcy Court’s Order confirming the
Plan because it was not directly and adversely affected by the Bankruptcy Court’s order. See,
e.g., In re Minor, ---B.R.---, No. 15-3562, 2016 WL 1256286, at *4 (E.D. Pa. Mar. 30, 2016)
(finding the City of Philadelphia did not demonstrate an injury sufficient to confer bankruptcy
appellate standing where the alleged injuries were comprised of the “Debtor failing to pay future
real estate taxes” and “from investors deciding to participate in fewer city tax sales”).

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B.

The City’s Standing to Object to Confirmation in the Bankruptcy Court 2

The Court now addresses whether the Bankruptcy Court erred in finding that the City
lacked standing to object to the provision of the Plan permitting payment of the redemption
amount over the course of the Plan period.
Standing before a bankruptcy court is premised on § 1324 of the Bankruptcy Code, which
states that, “[a] party in interest may object to confirmation of a plan.” 11 U.S.C. § 1324(a).
“[C]ourts must determine on a case by case basis whether the prospective party in interest has a
sufficient stake in the proceeding so as to require representation.” In re Amatex Corp., 755 F.2d
1034, 1042 (3d Cir. 1985). The “party in interest” standard and Article III standing are
“effectively coextensive.” Glob. Indus., 645 F.3d at 211. Accordingly, the City must meet the
familiar three-part test to establish standing. First, the City must have suffered an injury in fact,
which is defined as “an invasion of a legally protected interest which is (a) concrete and
particularized, and (b) actual or imminent, not conjectural or hypothetical.” Lujan v. Defenders
of Wildlife, 504 U.S. 555, 560 (1992). Allegations of possible future injury do not satisfy the
injury in fact standard. Reilly v. Ceridian Corp., 664 F.3d 38, 42 (3d Cir. 2011). To allege a
future harm as an injury in fact, the threatened injury must be “certainly impending” or there
“must be a substantial risk that the harm will occur.” Susan B. Anthony List v. Driehaus, 134 S.
Ct. 2334, 2341 (2014). Second, the injury must be “fairly traceable to the challenged action” of
the debtor and not the result of conduct of an independent third party. Lujan, 645 F.3d at 560.
Third, it must be likely, not merely speculative, that the injury will be redressed by a favorable
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While the Court finds that the City lacks bankruptcy appellate standing to challenge the
substance of the Bankruptcy Court’s decision, the City does have standing to appeal the
Bankruptcy Court’s determination that it lacked standing to object to certain provisions of the
Revised Fifth Amended Plan. See In re Glob. Indus. Techs., Inc., 645 F.3d 201, 209 n.23 (3d
Cir. 2011).
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decision. Id. at 561. The City, as the party invoking bankruptcy jurisdiction, has the burden of
establishing each of these elements. Id.
The City’s arguments as to bankruptcy standing are essentially the same as the City’s
appellate standing arguments—that confirmation of the Plan undermines the sheriff’s sale
process, and as a consequence, hinders the City’s ability to collect unpaid real property taxes.
1. Maintaining Productive Tax Rolls
The City first argues that allowing Mr. Wilson to redeem the Property over the life of the
Plan prevents it from placing the Property back on the productive tax rolls and undermines its
ability to satisfy tax delinquencies. Such a scenario, according to the City, keeps the Property in
the hands of an individual who has failed to pay in the past and, therefore, is likely to fail to do
so again. This alleged injury, however, fails to meet the injury in fact standard because it is
merely an allegation of conjectural or hypothetical future injury. It is neither actual nor
imminent. Rather, the alleged injury depends on an “attenuated chain of inferences,” including
the assumptions that Mr. Wilson would fail to pay future real estate taxes and that the
Subsequent Purchaser would pay future real estate taxes. The Court is not convinced that such
an alleged injury is “certainly impending.” Clapper v. Amnesty Int’l USA, 133 S. Ct. 1138, 1150
n.5 (2013). Nor can the City show that there is a substantial risk that it will be harmed by the
potential failure of Mr. Wilson to pay future real estate taxes. See, e.g., In re Minor, 2016 WL
1256286, at *5 (“[A] past failure to pay real estate taxes is insufficient, by itself, to create a
substantial risk that [a party] will fail to pay future real estate taxes.”).
2. Fewer Bids at Sheriff’s Sales
The City next argues that allowing a debtor to stretch out paying the redemption amount
over the course of a Chapter 13 plan will increase uncertainty of ownership following sheriff’s
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sales. The increased uncertainty, according to the City, will ultimately lead to fewer investors
bidding at sheriff’s sales, which, in turn, would lead to decreased competition at the sales. The
City contends that this alleged decreased competition would result in lower bids and sale of tax
delinquent properties for less money than otherwise could be gained. Ultimately, the injury
would reach its peak when, and if, bids are not adequate to satisfy delinquent tax bills emanating
from the properties being sold. This alleged “injury,” however, is most accurately seen as an
increased risk of future injury that is dependent on “entirely speculative, future actions of”
unknown third-parties. See Reilly, 664 F.3d at 42; see also In re Minor, 2016 WL 1256286, at
*6. Accordingly, the City has failed to allege an injury in fact as to the possibility of decreased
bids at future sheriff’s sales.
3. The MCTLA’s “Readiness to Pay” Requirement
Last, the City contends that the Plan, and plans like it, write the “readiness to pay
requirement” out of the MCTLA by allowing debtors to avoid paying the redemption amount in
a lump sum. The City, as a future creditor of redeeming debtors, alleges that this modification
will make it more likely that future redeeming debtors will fail to pay their municipal
obligations, such as taxes, insurance, and other expenses associated with owning property.
The MCTLA allows an owner whose property is sold at a sheriff’s sale to redeem the
property “within nine months from the date of the acknowledgment of the sheriff’s deed.” 53 Pa.
Stat. § 7293(a). When petitioning a court to redeem property sold at a sheriff’s sale, the MCTLA
requires the party seeking redemption to demonstrate a “readiness to pay” the redemption
amount. 53 Pa. Stat. § 7293(b). Section 7293, however, does not require a redeeming party to
pay the full redemption amount prior to the expiration of the nine-month redemption period. In
re Terry, 543 B.R. at 181 (citing City of Phila. v. Chin, 535 A.2d 110, 112 (Pa. Super. 1987);
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City of Phila. v. Taylor, 465 A.2d 33, 35 (Pa. Super. 1983)). All that is required is that the party
seeking redemption begin the process prior to the expiration of the nine-month redemption
period. 3 Id.
Furthermore, even if the Bankruptcy Court did confirm a plan that side-stepped the
MCTLA’s “readiness to pay” requirement, the City would still fail to allege an injury sufficient
to confer standing. The City essentially argues that requiring a redeeming party to pay the full
redemption amount within the nine-month redemption period makes it more likely that a
redeeming party would ultimately be able to afford the municipal obligations associated with
property ownership. This argument, however, suffers from the same deficiencies as the City’s
previous arguments—that the alleged injury depends on an “attenuated chain of inferences.”
Clapper, 133 S. Ct. at 1150 n.5. Any prospective injury is contingent upon the inference that a
party that pays the full redemption amount within a nine-month period is more likely to stay
current on municipal obligations than a party that pays the redemption amount over the life of a
Chapter 13 plan. The Court is simply not convinced that the City has demonstrated an
actionable, substantial risk of future injury. See, e.g., In re Minor, 2016 WL 1256286, at *5. 4
IV.

CONCLUSION
For the forgoing reasons, the Court will (i) affirm the Bankruptcy Court’s finding that the

City lacked standing to object to the provision of the Revised Fifth Amended Plan permitting
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Filing a proposed Chapter 13 plan with the bankruptcy court within the nine-month
redemption period, as Mr. Wilson did here, satisfies this requirement. See id.
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Because the Court has determined that the City does not have bankruptcy appellate
standing, it will not consider the substance of the City’s challenges. The Court notes, however,
that the challenges raised by the City in this action are substantially the same as those the City
raised in In re Terry and In re Minor. In both of those cases, the court found, in dicta, that the
City’s substantive challenges had no merit. See In re Terry, 543 B.R. at 180-82; In re Minor,
2016 WL 1256286, at *10-14.
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Mr. Wilson to pay the redemption amount over the term of the Revised Fifth Amended Plan, and
(ii) dismiss the City’s appeal of all other issues for lack of bankruptcy appellate standing.
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An appropriate Order follows.

BY THE COURT:
S/Gene E.K. Pratter
GENE E.K. PRATTER
United States District Judge

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