BUTKO et al v. CICCOZZI

Filing 23

OPINION re Bankruptcy Appeal. Signed by Judge J. Nicholas Ranjan on 4/26/2021. (av)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF PENNSYLVANIA
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RICHARD P. BUTKO and
LORRAINE E. BUTKO,
Appellants,
v.
RONALD A. CICCOZZI,
Appellee,

2:21-cv-150-NR

OPINION
This is an appeal from an order of the bankruptcy court dated July 1, 2020,
granting Appellee Ronald Ciccozzi relief from the mandatory stay in the bankruptcy
proceedings filed by Appellants Richard and Lorraine Butko. Mr. Ciccozzi sought
relief so that he could foreclose on a residence that he owns and rents to the Butkos
under a land installment agreement.

The bankruptcy court found that “cause”

existed for relief from stay because the Butkos defaulted under the parties’ agreement
and had no remaining cure rights.
The Butkos now raise several issues on appeal. This Court, however, cannot
address the merits of those issues because they are all barred by res judicata. The
Butkos litigated (or had a full and fair opportunity to litigate) all their issues from a
judgment entered by the bankruptcy court against them in late 2018. They never
appealed that judgment and now res judicata prevents them from filing a collateral
attack to re-litigate it. As a result, the Court finds that the bankruptcy court correctly
granted Mr. Ciccozzi relief from stay and will affirm the July 1, 2020, order.

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BACKGROUND
I.

The parties’ original agreements.
The bankruptcy court accurately observed that this “acrimonious dispute” has

a “tortured history.” In re Butko, 624 B.R. 338, 344 (Bankr. W.D. Pa. 2021) (“Butko

III”). That tortured history begins in December 2009, when the Butkos entered into
a lease with a purchase option with Mr. Ciccozzi and his late wife, Joan, for a house
located at 120 Heather Drive, Monaca, Pennsylvania. That option allowed the Butkos
to acquire title to the house once they paid the option price of $200,000.
In what would be a sign of things to come, that agreement would not be
completed. In December 2014, the parties executed a second lease with option to
purchase that, among other things, terminated the 2009 agreement and released any
related rights. Id. at 344. This new lease called for a monthly rental payment and
an eventual option to purchase for a lump sum on a date certain. Id. Unfortunately,
before that could happen, the Butkos defaulted on their rental-payment obligation,
prompting them to seek bankruptcy protection. Id.
II.

The 2016 bankruptcy.
On October 1, 2016, the Butkos filed a chapter 13 petition for bankruptcy.

Butko III, 624 B.R. at 344. Mr. Ciccozzi, for his part, filed a motion for stay relief,
claiming that the Butkos had no more than a limited possessory interest in the house
because of their earlier default. Id. The Butkos opposed that motion, arguing that
the “lease” for the house was not a “true lease,” but, rather, was a disguised financing
agreement in the form of an installment land contract governed by a Pennsylvania

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law known as “Act 6.”1 Id. at 344-45. The bankruptcy court agreed with Mr. Ciccozzi
because the lease was terminable at will. Id. at 345. But the court denied stay relief
because the cure period in the lease had not yet expired before the petition date. See

In re Butko, 584 B.R. 97, 109-10 (Bankr. W.D. Pa. 2018) (“Butko I”).
III.

The settlement agreement.
After some procedural maneuvering, the bankruptcy court steered the parties

toward a mediation before the Honorable Judith K. Fitzgerald, a former chief judge
of the bankruptcy court. Butko III, 624 B.R. at 345. This mediation was ultimately
successful and led to an agreement that gave the Butkos another chance to complete
the sale of the house. ECF 8-1. The settlement agreement called for a new round of
monthly payments that would apply to a new, increased purchase price. Id. And
unlike the lease, the Butkos would receive full credit for each monthly payment until
the final balance was paid. Id. At that point, the deed would be released to them
from escrow. Id.

Act 6 is protective statute designed to “provide residential homeowners notice and
an opportunity to cure default prior to foreclosure.” JP Morgan Chase Bank N.A. v.
Taggert, 203 A.3d 187, 196 (Pa. 2019). The text of the cure provision in Act 6 states:
1

Before any residential mortgage lender may accelerate the maturity of
any residential mortgage obligation, commence any legal action
including mortgage foreclosure to recover under such obligation, or take
possession of any security of the residential mortgage debtor for such
residential mortgage obligation, such person shall give the residential
mortgage debtor notice of such intention at least thirty days in advance
as provided in this section.
41 Pa. Stat. Ann. § 403(a).
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The settlement agreement also contained strict default provisions. Id. at ¶¶
12-19. The Butkos were provided a tight ten-day cure period upon a payment default.

Id. at ¶ 12. Mr. Ciccozzi did not have to notify the Butkos of any nonpayment. Id. at
¶ 13. If a default was not timely cured, “then all rights that [the] Butkos may have
in the Property shall finally and permanently terminate” and they “will have 30 days
from the 17th day of the calendar month to remove voluntarily from the Property.”

Id. at ¶ 15. And in the event of an uncured default, Mr. Ciccozzi would receive stay
relief upon an affidavit of default. Id. at ¶ 18. The bankruptcy court would also be
authorized, at that point, to enter a judgment for possession in favor of Mr. Ciccozzi
in an agreed-upon form attached to the settlement agreement. Id. at ¶ 17.
In September 2017, the parties presented the settlement agreement to the
bankruptcy court for approval under Bankruptcy Rule 9019. Butko III, 624 B.R. at
346. At the hearing on the settlement agreement, the Butkos were fully aware of the
serious repercussions of a future default. Id. Despite concerns over the harsh nature
of the default provisions, the bankruptcy court approved the settlement agreement,
subject to certain modifications. Id. at 346-47.
IV.

The first alleged default and the issuance of Butko I.
The Butkos defaulted again. About two months later, Mr. Ciccozzi filed an

affidavit of default and requested enforcement of the forfeiture provisions. Butko III,
624 B.R. at 347. The Butkos tried to block Mr. Ciccozzi’s requested relief by arguing
that the settlement agreement was an installment land contract subject to Act 6—
meaning that they were entitled to an unwaivable right to a statutory notice of

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default and 30-day cure period. Id. Essentially, the Butkos sought a ruling that the
Act 6 requirements still applied to the parties’ relationship despite the much harsher
default and cure provisions in the settlement agreement. Id.
Ultimately, the bankruptcy court entered an order in which it made three key
findings.

See generally Butko I, 584 B.R. 97.

First, the court found that the

settlement agreement was an installment land contract governed by Act 6. Id. at
102-04.

Second, the court found that the Butkos were judicially estopped from

asserting any Act 6 defenses because they had asked the court to approve the
settlement agreement and bind the parties to their deal. Id. at 108. Third, Mr.
Ciccozzi waived the default provisions by accepting late payment. Id. at 109-10.
In other words, the decision was a mixed bag for the parties. On the one hand,
the Butkos were right about the nature of the settlement agreement being an
installment land contract and the ultimate relief was in their favor. On the other
hand, the court found that they would be judicially estopped from asserting Act 6
defenses going forward. Given this outcome, neither party appealed the ruling.

Butko III, 624 B.R. at 350.
V.

The judgment for possession.
The next stage of the proceedings is the most critical for purposes of the present

appeal. The Butkos defaulted again under the settlement agreement. In September
2018, Mr. Ciccozzi filed another affidavit of default. Butko III, 624 B.R. at 351. In
response, the bankruptcy court granted Mr. Ciccozzi relief from stay in accordance
with the settlement agreement. Case No. 2:16-bk-23695, ECF 255. The Butkos

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sought reconsideration of that order based, in part, on an Act 6 defense. Case No.
2:16-bk-23695, ECF 257. In making this argument, the Butkos contended that the
bankruptcy court’s earlier judicial estoppel ruling was “dicta.” Butko III, 624 B.R. at
352. The bankruptcy court denied the Butkos’ request for reconsideration. Case No.
2:16-bk-23695, ECF 267.
With reconsideration denied, the parties made a flurry of oral motions. For his
part, Mr. Ciccozzi requested that the bankruptcy court enter a judgment for
possession as contemplated by the settlement agreement. Butko III, 624 B.R. at 35455. At that point, the Butkos questioned the bankruptcy court’s subject-matter
jurisdiction and authority to enter the requested judgment for possession. Case No.
2:16-bk-23695, ECF 267. The court ordered supplemental briefing from the parties
on this issue. Id. In their brief, the Butkos conceded that the bankruptcy court had
jurisdiction to enter judgment, but argued that the bankruptcy court should abstain
from all matters decided since Butko I, so that a Pennsylvania state court could
determine whether the Butkos’ Act 6 defenses were valid under state law. Case No.
2:16-bk-23695, ECF 272.
After briefing, the bankruptcy court found it had jurisdiction and entered a
judgment for possession in favor of Mr. Ciccozzi on December 4, 2018. Case No. 1623695, ECF 273 and 274. Importantly, the Butkos elected not to appeal that entry of
judgment for possession. Butko III, 624 B.R. at 355.

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VI.

The state-court action.
Soon after the bankruptcy court entered the judgment for possession, the

chapter 13 trustee moved to dismiss the Butkos’ bankruptcy case. Butko III, 624 B.R.
at 355-56. The Butkos didn’t oppose the motion, and the bankruptcy court dismissed
the chapter 13 case without prejudice on March 4, 2019. Id. at 356.
In the meantime, the Butkos filed a declaratory-judgment action in the Court
of Common Pleas of Beaver County, seeking to confirm that Mr. Ciccozzi was required
to comply with Act 6 requirements before executing on the judgment for possession.
Case No. 2:16-bk-23695, ECF 286-1. The state court directed Mr. Ciccozzi to “show
cause how this Court…could possibly enforce the [judgment for possession] without
running afoul of Act 6[.]” Case No. 2:20-bk-21255, ECF 56-3. After a review of the
record and a pretrial conference, the state court dismissed the case. ECF 8-3. The
state court held that the Butkos were barred from challenging the bankruptcy court’s
judicial estoppel ruling because of res judicata. Id. at pp. 2-3.
VII.

The second bankruptcy, and the issuance of Butko II.
After their defeat in state court, the Butkos filed a second chapter 13

bankruptcy petition on April 13, 2020. Butko III, 624 B.R. at 357. Mr. Ciccozzi filed
a motion for relief from stay based on the default provisions of the settlement
agreement and his lack of adequate protection. Id. The Butkos opposed this motion,
arguing that their continued possessory interest in the house was entitled to
protection while they sought to cure the default under the settlement agreement
through a chapter 13 plan. Id. Concurrent with their response, the Butkos filed a

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chapter 13 plan that contemplated paying all creditors (including Mr. Ciccozzi), in
full, from a sale of the house by May 31, 2021. Id. at 358.
On July 1, 2020, the bankruptcy court issued Butko II. In re Butko, 617 B.R.
532 (Bankr. W.D. Pa. 2020) (“Butko II”). In that decision, the court held that relief
from stay was warranted because the Butkos no longer had any cure rights under
applicable non-bankruptcy law. Id. at 534. That’s because the court found that the
judgment for possession was a final order that terminated the Butkos’ equitable
interest in the property. Id. at 536. That left the Butkos with just a “bare possessory
interest,” which could not “sustain the protections of the automatic stay.” Id. (cleaned
up).
VIII. Reconsideration and appeal.
In response to this setback, the Butkos filed a motion for reconsideration of

Butko II. Butko III, 624 B.R. at 359. The Butkos argued that the court had
“overlooked” two important issues: (1) that the judgment for possession is void
because Mr. Ciccozzi failed to give them an Act 6 notice; and (2) even if the judgment
for possession is not void, it is a “confessed judgment” and not a final order until
“conformed” under Act 6. Id. Either way, the Butkos argued that the bankruptcy
court must vacate the order granting Mr. Ciccozzi stay relief to avoid “manifest
injustice,” particularly given the bankruptcy court’s alleged errors, the importance of
Act 6 protections, their impending loss of equity, and Mr. Ciccozzi’s undeserved
windfall. Id. at 360.

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Following extensive briefing on a show-cause order and a full hearing, the
bankruptcy court denied the Butkos’s motion. See generally id.
IX.

Order on appeal.
On February 2, 2021, the Butkos filed a notice of appeal to this Court. ECF 1.

The order now on appeal is the bankruptcy court’s July 1, 2020, order in Butko II,
which found that cause exists to grant Mr. Ciccozzi relief from stay. Id.
Because of an imminent eviction from the property, this Court granted a
limited stay of the bankruptcy court’s order, to allow the parties to brief this appeal
on an expedited basis. ECF 12.
The parties have completed briefing; the Court heard oral argument; and the
appeal is ready for disposition.
JURISDICTION & STANDARD OF REVIEW
This Court has appellate jurisdiction under 28 U.S.C. §§ 158(a) and 1334. See,

e.g., In re Michael, 699 F.3d 305, 308 n.2 (3d Cir. 2012) (“[A] district court sits as an
appellate court to review a bankruptcy court[.]”); In re Connors, 497 F.3d 314, 318
(3d Cir. 2007) (“The District Court had jurisdiction, pursuant to 28 U.S.C. § 158(a),
over Conners’s appeal from the Bankruptcy Court’s order lifting the automatic stay.”)
(citations omitted).
“Federal Rule of Bankruptcy Procedure 8013 provides that a reviewing court
may affirm, modify, or reverse a bankruptcy judge’s judgment, order, or decree or
remand with instructions for further proceedings.” Forever Green Athletic Fields,

Inc. v. Dawson, 514 B.R. 768, 778 (E.D. Pa. 2014) (cleaned up). This review is
“governed by traditional standards of appellate review[.]” Id. That means that this
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Court reviews a “bankruptcy court’s legal determinations de novo, independent of
that court and without deference to its analysis and conclusions of law.” Id. (citing

Am. Flint Glass Workers Union v. Anchor Resolution Corp., 197 F.3d 76, 80 (3d Cir.
1999). Factual findings, on the other hand, are reviewed “for clear error.” In re

Montgomery Ward Holding Corp., 326 F.3d 383, 387 (3d Cir. 2003).
DISCUSSION & ANALYSIS
I.

The Butkos’ collateral attack on the judgment for possession is barred
by res judicata.
The subject of this appeal is narrow. The Butkos are appealing the bankruptcy

court’s decision to grant Mr. Ciccozzi “relief from stay to pursue his rights under state
law” to obtain possession of the property. Butko II, 617 B.R. at 536. The crux of that
decision is that the bankruptcy court’s prior judgment for possession in 2018 was a
final order that terminated the Butkos’ “equitable interest in the property” and left
“them with no right to cure their default under state or federal law.” Id. To prevail
on this appeal, then, the Butkos must collaterally attack the validity of that
underlying judgment.
On that score, the Butkos advance four arguments: (1) the judgment is void,
and therefore a legal nullity; (2) the judgment is “confessed” under state law, and
therefore not a final order entitled to res judicata effect until “conformed” under Act
6; (3) the judgment should not have been entered because it hinged on the bankruptcy
court’s erroneous finding that the Butkos were judicially estopped from raising Act 6
defenses; and (4) the judgment did not terminate their equitable interest in the
property because only a sheriff’s sale could do that.
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ECF 13.

After careful

consideration, the Court finds that the judgment is entitled to res judicata effect, and
can no longer be invalidated, regardless of whether the Butkos would have prevailed
on direct appeal. The judgment thus provided a proper basis for the bankruptcy court
to grant Mr. Ciccozzi relief from stay.
A.

Res judicata applies to the judgment for possession.

The doctrine of res judicata “protect[s] litigants from the burden of relitigating
an identical issue with the same party or his privy and … promot[es] judicial economy
by preventing needless litigation.” Parklane Hosiery Co. v. Shore, 439 U.S. 322, 327
(1979). To apply, these three prongs must be met: “(1) a final judgment on the merits
in a prior suit involving (2) the same parties or their privies and (3) a subsequent suit
based on the same cause of action.” Lubrizol Corp. v. Exxon Corp., 929 F.2d 960, 963
(3d Cir. 1991). The judgment for possession satisfies all three elements.
The Butkos do not dispute that the second and third elements are met. Nor
could they. Regarding the second element, the parties are the same as in the prior
bankruptcy proceeding that led to the judgment for possession. As for the third
element, the Third Circuit has instructed courts to “take a ‘broad view’ of what
constitutes the same cause of action.” Sheridan v. NGK Metals Corp., 609 F.3d 239,
261 (3d Cir. 2010) (citations omitted). “In determining whether a subsequent case is
based on the same cause of action as a prior case, we will look to whether there is an
essential similarity of the underlying events giving rise to the various legal claims.”

Foster v. Denenberg, 616 F. App’x 472, 474 (3d Cir. 2015) (cleaned up). The Butkos’
second bankruptcy case is based on the “same cause of action” as their first
bankruptcy petition and concerns the very same claims, arguments, and relief as
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litigated before. Indeed, directly at issue now is Mr. Ciccozzi’s request for relief from
the stay so that he can pursue his right of possession of the property under state law.
That is the same scenario as presented in the proceedings leading to the bankruptcy
court’s entry of the judgment for possession.
The only potential area of dispute is the first element—whether the judgment
for possession was a “final judgment.” The Court finds that it was, and that res
judicata applies.
The Butkos argue that the judgment for possession could not have terminated
their “rights” to the property because the judgment for possession is a “confessed
judgment” and Act 6 requires such a judgment to be “conformed” before it becomes
“final.” ECF 13, pp. 22-25. Initially, the Butkos may be correct about how confessed
judgments are treated generally under Act 6. Under Act 6, a confessed judgment is
not final. After it is entered, a creditor must file a new action in state court to execute
on a confessed judgment; as part of this new action, a debtor can essentially raise any
defense they so desire. 41 Pa. Stat. Ann. § 407. Considering this unique procedure,
at least one court has held that a confessed judgment subject to Act 6 is not final for
purposes of res judicata. See In re Olick, 221 B.R. 146, 151 (Bankr. E.D. Pa. 1998)
(“Accordingly, the doctrine of merger cannot apply to a confessed judgment because,
due to section 407 of Act 6, a confessed judgment is not a final judgment. Merger is
a rule of res judicata which holds that all of a plaintiff’s claims are merged into a
plaintiff's judgment at the end of a legal proceeding thereby preventing the plaintiff

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from ever again being able to bring an action based on the same claims.”) (citations
omitted).
Thus, a critical question is whether the judgment for possession entered by the
bankruptcy court was a “confessed judgment.” After a careful review of the relevant
agreement, procedural history, and Pennsylvania law, the Court finds that the
judgment for possession here was not a confessed judgment. As a result, it was final
upon entry.
“Judgment by confession is a product of state law, having no analog in the
federal rules.” F.D.I.C. v. Deglau, 207 F.3d 153, 159 (3d Cir. 2000) (cleaned up). As
a result, the practice is governed by the Pennsylvania Rules of Civil Procedure. See
Pa R. Civ. P. 2950-2961, 2970-2976. “The confession of judgment, or cognovit, is an
ancient legal device by which a debtor consents in advance to the holder’s obtaining
a judgment without notice or hearing and usually with the appearance, on the
debtor’s behalf, of an attorney designated by the holder.” 11 Standard Pennsylvania
Practice 2d § 67:11. “The creditor or its attorney simply … apply to the court for
judgment against the debtor in default without requiring or permitting the debtor or
guarantors to respond at that juncture.” Silverman v. Eastrich Multiple Inv’r Fund,

L.P., 51 F.3d 28, 32 (3d Cir. 1995). This is typically accomplished through the filing
of a warrant of attorney to confess judgment that is “self-sustaining, in writing, and
… signed by the person to be bound by it.” 11 Standard Pennsylvania Practice 2d §
67:26. Then, a nonjudicial officer “enter[s] judgment in conformity with the

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confession” (Pa. R. Civ. P. 2956) that enjoys “all the qualities of a judgment on a
verdict” (Kostenbader v. Kuebler, 48 A. 972, 972 (Pa. 1901)).
In the “normal” case, if a dispute arises as to whether a judgment is confessed,
the debtor typically argues that it is not confessed, and then the court strictly
construes the language in the underlying agreement purportedly authorizing the
confessed judgment, “with any ambiguities resolved against the party in whose favor
the warrant is given.” 11 Standard Pennsylvania Practice 2d § 67:23. That is
necessary because a “judgment by confession is not to be foisted upon anyone by
implication or by a nonspecific reference.” Vincler v. Vincler, 583 A.2d 4, 5 (Pa. Super.
Ct. 1990) (citation omitted).
What makes this case odd is that the Butkos’ argument flips the typical
scenario on its head. That is, the Butkos, as debtors, are arguing that the default
provisions in the settlement agreement should be liberally construed against them
by authorizing the entry of a confessed judgment in the form of the judgment for
possession.

But applying the appropriate standard of review, the language of the

settlement agreement and the proceedings leading up to the bankruptcy court’s entry
of the judgment for possession make clear that the judgment for possession is not
“confessed” for at least three reasons.
First, to state the obvious, this is not state court. As noted above, the entire
concept of a confessed judgment is a creature of state law. And under state law, there
are very specific forms and procedural steps that render a judgment a “confessed
judgment.” The 2018 judgment for possession, however, was a creature of bankruptcy

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proceedings.

It was authorized by a settlement agreement that was part of a

bankruptcy-court mediation and that was approved by the bankruptcy court. The
bankruptcy court, not a state court, eventually entered judgment. And none of the
ordinary forms or procedures were followed. In other words, the normal hallmarks
of a confessed judgment were not present, which is evidence that the judgment here
was something other than a confessed judgment.
Second, the settlement agreement lacks the standard clauses authorizing a
confession of judgment, such as a confession-of-judgment provision or a “warrant of
attorney” clause. While the Court is mindful not to put form over substance, under
Pennsylvania law, the lack of these standard clauses is also evidence that the parties
did not intend the settlement agreement to authorize a confessed judgment. Instead,
the settlement agreement had provisions that authorized the judgment for possession
to be entered, so that Mr. Ciccozzi could potentially have it transferred to state court
or the U.S. Marshal to evict the Butkos. ECF 8-1, ¶ 17. These provisions are not
analogous to the standard confession clauses, which provide for a warrant of
authority, a conspicuous disclaimer of rights, and process for the creditor to simply
file a form with the state-court prothononotary. Indeed, in the more ordinary scenario
of a debtor seeking to set aside a confessed judgment, a court would construe the lack
of any express confession or warrant provisions as not authorizing a confessed
judgment. 11 Standard Pennsylvania Practice 2d § 67:23 (“[A] written lease or
contract that authorizes a party to confess judgment must be strictly construed.”).

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Third, as further evidence of the parties’ intent, the key provisions of the
settlement agreement contemplate additional judicial involvement before the
judgment could be entered—which would be directly at odds with a confessed
judgment. Before Mr. Ciccozzi could obtain a judgment for possession, he first had to
file an affidavit of default and move for relief from the automatic stay in the
bankruptcy proceeding. ECF 8-1, ¶¶ 17-18. Once entered, though, Mr. Ciccozzi still
was not done because he could only enforce the judgment through another separate
process.2 Id. This multi-stage process strays from the typical process to obtain a
confessed judgment. There, all that is usually required is the ministerial act of an
attorney filing a warrant and the underlying agreement with the state-court
prothonotary. A judge is never involved. The settlement agreement’s additional
requirements give the judgment for possession entered here a different character.
This difference is important because, as the bankruptcy court observed, “the
fundamental indicia of a judgment by confession are entry without notice or an

opportunity to be heard[.]” Butko III, 624 B.R. at 376 (emphasis added). That was
not the case here—the Butkos had notice that the judgment for possession would be
entered and an opportunity (and incentive, considering they faced the potential loss
of their home) to raise their arguments prior to its entry. And, as is clear from the
record, the Butkos did, in fact, raise challenges to the judgment for possession before
it was entered. See Butko III, 624 B.R. at 352-56.

This separate process was not the separate Act 6-type original action, which would
ordinarily occur upon entry of a confessed judgment. Rather, it was a transfer to a
state court or U.S. Marshal to assist in eviction.
2

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For these reasons, the Butkos’ argument over the nature of the judgment does
not alter the Court’s conclusion that the judgment for possession is a “final judgment”
and should be afforded res judicata effect.
B.

The Butkos’ arguments on appeal are barred by res judicata.

Because the judgment for possession is entitled to res judicata effect, that
means, as a consequence, the Butkos are barred from not only bringing “claims that
were brought in [the] previous action, but also claims that could have been brought.”

Duhaney v. Att’y Gen. of U.S., 621 F.3d 340, 347 (3d Cir. 2010) (cleaned up). As
discussed below, all the remaining issues the Butkos raise in this appeal were either
litigated or could have been litigated in the prior proceedings. They are therefore
barred.
1.

The Butkos are barred from arguing that the bankruptcy
court lacked subject-matter jurisdiction to enter the
judgment for possession.

To invalidate the judgment for possession, the Butkos argue that it is void
because the bankruptcy court did not have subject-matter jurisdiction to enter it.
ECF 13, pp. 12-16.

Specifically, they argue that Act 6, which applies to the

settlement agreement, is jurisdictional. If correct, the consequence would be that Act
6 cure rights must apply (but were not applied), and so the bankruptcy court’s entry
of judgment was improper. Even if the Butkos were correct and the bankruptcy court

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lacked jurisdiction to enter the judgment in 2018,3 this jurisdictional argument is
barred by principles of res judicata.
To begin with, there is a misconception that subject-matter jurisdiction may be
raised at any time. That is not quite right. During a case, certainly, subject-matter
jurisdiction may be raised and considered at any time. But res judicata bars litigants
from collaterally attacking subject-matter jurisdiction in a prior case.
As the bankruptcy court found, the Butkos are essentially making the
equivalent of a Rule 60 motion, to attack the validity of the prior judgment for
possession. Butko III, 624 B.R. at 368. “Rule 60(b)(4) allows a court to relieve a party
from a final judgment if the judgment is void.” In re Prosser, 574 F. App’x 82, 83 (3d
Cir. 2014) (cleaned up).

A void judgment “is one so affected by a fundamental

infirmity that the infirmity may be raised even after the judgment becomes final.”

United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260, 270 (2010). “The list of
such infirmities is exceedingly short; otherwise, Rule 60(b)(4)’s exception to finality
would swallow the rule.” Id. A lack of subject-matter jurisdiction makes that list,
but “only where there is a ‘total want of jurisdiction’ or ‘in the rare instance of a clear
usurpation of power.’” In re Prosser, 574 F. App’x at 83 (quoting Marshall v. Bd of

Educ., 575 F.2d 417, 422 n. 19 (3d Cir. 1978)). And neither condition is met where
subject-matter jurisdiction was “specifically addressed” by the court. See id. at 84
(cleaned up). That’s because “it has long been the rule that principles of res judicata

The parties debate whether Act 6 is “jurisdictional” or “procedural.” This Court,
however, need not decide this issue. Even if Act 6 is jurisdictional, the Butkos are
barred by res judicata from raising this argument now.
3

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apply to jurisdictional determinations—both subject matter and personal.”

Id.

(citation omitted); see also Marshall, 575 F.2d at 422 (finding no usurpation of
authority when the parties had appeared and litigated subject-matter jurisdiction).
It is undisputed that the bankruptcy court addressed its subject-matter
jurisdiction before entering the judgment for possession. After the bankruptcy court
granted Mr. Ciccozzi relief from stay in the Butkos’ first bankruptcy in September
2018, the Butkos moved for reconsideration. Case No. 2:16-bk-23695, ECF 257. The
bankruptcy court held a hearing. Case No. 2:16-bk-23695, ECF 267. After that
hearing, the bankruptcy court ordered the parties to file supplemental briefing on the
specific issue of whether the court had subject-matter jurisdiction and authority to
enter the proposed judgment for possession. Id. at p. 2. The Butkos filed a brief, as
instructed. See Case No. 2:16-bk-23695, ECF 272. In their brief, the Butkos conceded
that the bankruptcy court had jurisdiction, but argued that the bankruptcy court
should abstain not only from the entry of judgment, but from all matters decided since

Butko I, so that a Pennsylvania state court could determine whether the Butkos’ Act
6 defenses were valid under state law. See id. at pp. 7-8. Following that briefing, the
bankruptcy court noted that all parties agreed that it had subject-matter jurisdiction,
and therefore found that it had subject-matter jurisdiction, declined to abstain, and
entered the judgment for possession in favor of Mr. Ciccozzi. Case No. 2:16-bk-23695,
ECF 273 and 274.4
To be sure, the Butkos didn’t appear to raise their precise argument they now
advance on appeal—i.e., that Act 6 is jurisdictional—but during their briefing, they
took aim at the bankruptcy court’s ruling in Butko I that judicial estoppel precluded
them from raising their Act 6 defenses. See Case No. 2:16-bk-23695, ECF 265. They
4

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The bankruptcy court’s judicial determination of jurisdiction is “fatal” to the
Butkos’ argument.

In re Prosser, 574 F. App’x at 84. “Because subject matter

jurisdiction was litigated prior to the entry of the judgment, any further challenge on
that ground could only have been made on direct appeal.” Id. (citing Ins. Corp. of

Ireland, Ltd. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 702 (1982) (“A party
that has had an opportunity to litigate the question of subject-matter jurisdiction may
not, however, reopen that question in a collateral attack upon an adverse
judgment.”)); see also Chicot Cnty. Drainage Dist. v. Baxter State Bank, 308 U.S. 371,
376 (1940) (a federal court’s determination of jurisdiction “while open to direct review,
may not be assailed collaterally”).
The Butkos, however, never directly appealed the judgment. Instead, they
made the strategic decision to embark on an ultimately unsuccessful collateral attack
in state court. Now, the time to appeal the judgment for possession has long since
passed, and the Butkos are precluded from collaterally invalidating it based on the
bankruptcy court’s purported lack of subject-matter jurisdiction.

also made arguments that pertained to the non-waivability of Act 6, which touches
on the jurisdictional argument they now make. See id. Moreover, for purposes of res
judicata, it is sufficient that the Butkos could have raised their Act 6 jurisdiction
argument; there is no question that they had a full and fair opportunity to do so when
they were raising all of their other arguments about whether the bankruptcy court
had and should exercise subject-matter jurisdiction to enter the judgment for
possession. Finally, even if the Butkos could bring this argument now, they do not
“identify any alleged jurisdictional error sufficiently egregious so as to render the
judgment void.” In re Prosser, 574 F. App’x at 84. Recall the standard. To collaterally
attack a jurisdictional ruling, the moving party must establish a “total want of
jurisdiction.” Id. At best, it is only arguable that the bankruptcy court lacked
jurisdiction based on the notice requirements of Act 6, as evidenced by the competing
authority from Pennsylvania courts identified by the bankruptcy court.
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C.

The Butkos’ Act 6-related arguments related to judicial estoppel
and a sheriff’s sale are also barred by res judicata.

The Butkos raise two additional Act 6-related arguments in this appeal. They
argue that the bankruptcy court erred in judicially estopping them from raising their
Act 6 defenses. ECF 13, pp. 16-22. They also argue that the judgment for possession
did not terminate their equitable interest in the property because there has not yet
been a sheriff’s sale, as required by Act 6. Id. at pp. 26-28. Both arguments are
barred by res judicata, however, because they were either raised or could have been
raised in the proceedings immediately preceding entry of the judgment.
That is, just before entering judgment for possession, the parties litigated the
same precise issue now before this Court—whether Mr. Ciccozzi is entitled to relief
from stay. Case No. 2:16-bk-23695, ECF 255. During that briefing, the Butkos raised
their “judicial estoppel” argument and could have raised their “sheriff’s sale”
argument. The Butkos are now making those same arguments in opposition to
essentially the same relief the bankruptcy court previously ordered. For example,
the Butkos are arguing that Act 6 applies to the settlement agreement and provides
them with cure rights up until the point of a sheriff’s sale. As such, they contend that
they have more than a possessory interest in the property and thus should be entitled
to an automatic stay. But this precise argument should have been raised when Mr.
Ciccozzi sought relief from stay in 2018. The Butkos cannot keep filing bankruptcy
cases to re-litigate the same issues.5 That the Butkos had the opportunity to raise

Even if this Court were to consider the merits of the Butkos’ “sheriff’s sale”
argument, the bankruptcy court was right to reject that argument. See Butko II, 617
B.R. at 535. With a land installment contract, the vendor, here Mr. Ciccozzi, retains
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these arguments in the prior bankruptcy bars them from re-litigating these issues
again several years later. See Elkadrawy v. Vanguard Grp., Inc., 584 F.3d 169, 173
(3d Cir. 2009) (“[R]es judicata bars not only claims that were brought in the previous
action, but also claims that could have been brought.”) (cleaned up).
II.

The bankruptcy court correctly concluded that Mr. Ciccozzi was
entitled to relief from stay.
As noted above, the order at issue on appeal is the bankruptcy court’s order,

granting Mr. Ciccozzi relief from stay. The bankruptcy court held that because the
Butkos no longer had any legal or equitable rights to the property, cause existed to
grant relief from stay. Butko II, 617 B.R. at 536. This Court agrees. Because the
Butkos’ legal rights to the property were terminated by the 2018 judgment—which
they are precluded from re-litigating—this Court finds that bankruptcy court
correctly concluded that cause existed to grant Mr. Ciccozzi relief.
In bankruptcy law, “[t]he concept of ‘cause’ is broad and flexible requiring a
fact intensive analysis.” In re Flabeg Solar US Corp., 499 B.R. 475, 482 (Bankr. W.D.
Pa. 2013) (citation omitted). Any factual findings that the bankruptcy court makes
under that analysis are entitled to deferential treatment under a “clear error”
standard. In re Montgomery Ward, 326 F.3d at 387. As a factual matter, it was not
a clear error for the bankruptcy court to find, based on the extensive procedural

legal title until completion of the contract. When there is a default, and the contract
is never completed, the title simply remains in the vendor’s possession. See id.
(collecting cases). No “sale” is necessary to transfer that ownership. As a result, the
Butkos argument that their interest in the property could be terminated only by
sheriff’s sale would mean that their interest could never be terminated, because no
sheriff’s sale will ever occur for the property.
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history of this case, that the Butkos only have a possessory interest in the property.
Nor was it legal error for the bankruptcy to find that, consistent with the weight of
authority by the bankruptcy courts in this Circuit, the lack of any interest beyond
possession took the Butkos outside the protections of the automatic stay. See, e.g.,

In re Flabeg, 499 B.R. at 483; In re Ramreddy, Inc., 440 B.R. 103, 116 (Bankr. E.D.
Pa. 2009); In re Burch, 401 B.R. 153, 157 (Bankr. E.D. Pa. 2008); Twin Rivers Lake

Apts. Horizontal Prop. Regime, Inc. v. Wallner, No. 05-4560, 2006 WL 2023188, at *9
(D.N.J. July 18, 2006); In re Turner, 326 B.R. 563, 573 (Bankr. W.D. Pa. 2005). Since
all the Butkos’ arguments about their legal and equitable interest in the property are
now barred because of res judicata, granting Mr. Ciccozzi relief from the mandatory
stay was appropriate.6
The Court acknowledges that the Butkos might find this result to be unfair,
because it follows from their tactical mistake of pursuing a state-court attack rather
than a direct appeal of the 2018 judgment for possession—which could have
The Third Circuit has held that a bare possessory interest can trigger the automatic
stay. In re Atl. Bus. & Cmty. Corp., 901 F.2d 325, 328 (3d Cir. 1990). However, the
weight of the authority in this Circuit has interpreted this Third Circuit decision as
requiring the debtor to at least have some colorable legal right in the property to
obtain the benefit of the automatic stay. See In re Flabeg, 499 B.R. at 482 (compiling
cases). The Butkos do not argue that their bare possessory interest is enough to
maintain the automatic stay, or that the bankruptcy court erred in concluding that
no further legal or equitable interest in the property constituted cause to provide
relief from stay. Thus, the Butkos have waived the ability to raise such an argument
now on appeal. See, e.g., Travitz v. Ne. Dep’t ILGWU Health & Welfare Fund, 13
F.3d 704, 711 (3d Cir. 1994) (“When an issue is not pursued in the argument section
of the brief, the appellant has abandoned and waived that issue on appeal.”) (citation
omitted); Hackerman v. Demeza, 576 B.R. 472, 478 (M.D. Pa. 2017) (“Accordingly,
because Hackerman has waived any challenge to the denial of the motion to convert
by failing to address it in his briefing, this court will not disturb the bankruptcy
court’s order denying this motion.”).
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potentially led to a different outcome. But there “is no equitable exception to the
operation of res judicata when a party fails to file an appeal.” McHale v. Kelly, 527
F. App’x 149, 152 (3d Cir. 2013) (citation omitted). Since the judgment for possession
against the Butkos is now etched in stone, nothing can “relieve them of the
consequences of [their] procedural misstep.” Id. (citation omitted).
CONCLUSION
For the above reasons, the bankruptcy court’s order granting Mr. Ciccozzi relief
from the bankruptcy stay will be AFFIRMED. An appropriate order follows.
Dated this 26th day of April, 2021.

BY THE COURT:
/s/ J. Nicholas Ranjan
United States District Judge

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