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Zokaites Properties, Lp v. La Mesa Racing

August 1, 2012

ZOKAITES PROPERTIES, LP, PLAINTIFF,
v.
LA MESA RACING, LLC, DEFENDANT.



The opinion of the court was delivered by: Magistrate Judge Maureen P. Kelly

MEMORANDUM OPINION

I. INTRODUCTION

Pending before the Court are a Motion to Remand and a Motion to Dismiss for Lack of Subject Matter Jurisdiction Under the Doctrine of Rooker-Feldman (the "Motion to Dismiss"), filed by the Plaintiff. [ECF Nos. 13 & 22]. The motions were reinstated on April 26, 2012, after being denied without prejudice in connection with an earlier stay in this case. [ECF No. 62]. For the reasons that follow, the two pending motions will be denied.

II. BACKGROUND

Plaintiff Zokaites Properties, LP ("Zokaites Properties"), is a limited partnership formed under the laws of Pennsylvania. [ECF No. 1-2 at 3, ¶ 1]. Frank Zokaites ("Zokaites") and his wife are its limited partners. [ECF No. 26 at 42]. Zokaites Properties maintains its principal place of business in Wexford, Pennsylvania. [ECF No. 1 at ¶ 14]. Defendant La Mesa Racing, LLC ("La Mesa"), is a limited liability company formed under the laws of New Mexico. [Id. at ¶ 17]. La Mesa maintains its principal place of business in Raton, New Mexico. [Id.].

La Mesa was incorporated on October 19, 1998. [ECF No. 1-2 at 12-13]. In its articles of organization, La Mesa listed Steven Vincent ("Vincent") and William L. Siskind ("Siskind") as its managers. [Id. at 16]. Butch Maki ("Maki"), a resident of Sante Fe, New Mexico, was listed as La Mesa's "initial registered agent." [Id.]. La Mesa owns roughly 213 acres of property located in Raton, New Mexico. [ECF No. 1-2 at 4, ¶ 4]. The property includes a horse-racing track that is not currently operational. [Id.]. A dilapidated club house and several grandstands are located near the track. [Id.].

In 2002, Siskind informed Zokaites that La Mesa was in need of money to prevent an imminent foreclosure action stemming from a mechanic's lien in the approximate amount of $118,500.00.*fn1 [Id. at 4, ¶ 7]. In addition to the money needed to prevent the holder of the lien from foreclosing on La Mesa's property, La Mesa needed funds to have the property appraised and cover other expenses. [Id.]. After hearing about the situation, Zokaites provided Siskind with a loan in the amount of $151,550.00. [ECF No. 8 at 100]. It was agreed that Siskind would execute a promissory note providing for the repayment of the loan, that La Mesa would guarantee the promissory note and related collateral agreement, and that the loan would be cross-collateralized with an indemnity mortgage on the "Jefferson Building." [ECF No. 1-2 at 4-5, ¶ 8]. The Jefferson Building was located in Baltimore, Maryland, and owned by Transamerican Commercial Limited ("TCL"). [Id.].

Siskind executed the promissory note on March 20, 2002. [Id. at 19-21]. The maturity date of the note was designated as two years from the date of its execution, with interest to be accrued at the rate of 8%. [Id. at 19]. The note further provided that the maturity date could be "automatically extended" for an additional two years, during which the total amount of the principal and interest due thereunder would be amortized over a five-year period at an interest rate of 9%. [Id.]. That same day, Siskind signed a document which stated that La Mesa "fully guarantee[d]" the promissory note and collateral agreement, and that he had "full authority" to assent to such an obligation on La Mesa's behalf. [Id.]. Zokaites and Siskind both signed the collateral agreement, which provided Zokaites with an undiluted 2% ownership interest in La Mesa. [Id. at 25].

On April 5, 2002, TCL executed the indemnity mortgage agreement in Zokaites' favor, thereby placing an encumbrance on the Jefferson Building. [Id. at 27-30]. TCL formed 101 Charles, LLC ("101 Charles"), on July 9, 2002. [ECF No. 1-2 at 7, ¶ 16]. On July 31, 2002, TCL recorded a deed to the Jefferson Building in favor of 101 Charles. [Id.].

La Mesa used the $151,550.00 loan to satisfy the mechanic's lien, have the property appraised, and cover other expenses. [ECF No. 1-2 at 6, ¶ 14]. No payments were made on the loan prior to June 5, 2004. [Id. at 6, ¶ 15]. On that date, Jeffrey Siskind ("Jeffrey"), Siskind's son and attorney, contacted Zokaites and asked that the principal and interest payments be deferred for two years pursuant to the terms of the promissory note. [Id.]. Zokaites agreed to that arrangement. [Id.]. On June 24, 2004, Zokaites faxed to Siskind an invoice indicating that the principal and accrued interest owed on the loan had equaled $175,798.00 as of March 20, 2004, and that $10,947.84 was due immediately. [Id. at 32]. In a handwritten notation, Zokaites stated that he agreed to let the balance accrue through March 2006. [Id.].

TCL sold its interest in 101 Charles and the Jefferson Building on September 15, 2004. [Id. at 7, ¶ 17]. Pursuant to the terms of the indemnity mortgage agreement, TCL paid the principal and outstanding interest to Zokaites at the closing. [Id.]. On September 25, 2004, Zokaites sent the promissory note back to Siskind and mistakenly marked it as having been paid in full. [Id. at 7, ¶ 18]. In a letter dated October 6, 2004, Jeffrey informed Zokaites that TCL had paid the money due under the note "by means of an adjustment to the purchase price at the closing of the sale of the remaining portion of the Jefferson Building." [Id. at 34]. Jeffrey asked Zokaites to assign the note to TCL so that the money owed by Siskind and La Mesa could be recovered. [Id.]. Three days later, Zokaites assigned the note to TCL by completing a form that had been sent with Jeffrey's letter. [Id. at 36].

On July 31, 2007, La Mesa filed a petition for bankruptcy relief in the United States Bankruptcy Court for the District of Maryland. [Id. at 7-8, ¶ 20]. Although the original petition was filed under Chapter 7 of the United States Bankruptcy Code [11 U.S.C. § 701 et. seq.], the case was later converted to a proceeding under Chapter 11 [11 U.S.C. § 1101 et seq.]. [Id.]. La Mesa identified the claim owed to TCL in its bankruptcy schedules. [Id. at 8, ¶ 21]. Zokaites Properties purchased TCL's rights under the promissory note on October 12, 2009. [Id. at 8, ¶ 22]. Siskind's wife and children executed a document assigning TCL's rights under the promissory note to Zokaites Properties. [Id. at 38]. Shortly thereafter, Zokaites Properties filed an original proof of claim in La Mesa's bankruptcy case. [ECF No. 8 at 143-144].

A hearing in the bankruptcy proceeding was held before United States Bankruptcy Judge Nancy V. Alquist on September 29, 2010. With the express consent of all parties present at the hearing, Judge Alquist stated that she would dismiss the bankruptcy petition. [ECF No. 51-3 at 10]. On October 1, 2010, she signed an order dismissing the case and barring La Mesa from filing another voluntary bankruptcy petition for a period of five years. [ECF No. 11 at 103-104]. The order, which was entered on the Bankruptcy Court's docket on October 4, 2010, had the effect of terminating the automatic stay that had been imposed on claims against La Mesa pursuant to 11 U.S.C. § 362(a). [Id. at 104].

Zokaites Properties commenced this action in the Court of Common Pleas of Allegheny County, Pennsylvania, on October 1, 2010, alleging that La Mesa had breached its contractual obligations by failing to fulfill its financial responsibilities under the assignment. [ECF No. 1-2 at 8-9, ¶¶ 26-32]. As of that date, Zokaites Properties claimed that it was owed $358,583.00. [Id. at 9, ¶ 31]. On November 5, 2010, Zokaites Properties filed an affidavit of service in the Court of Common Pleas. [ECF No. 3 at 2-3]. In the affidavit of service, Zokaites Properties stated that a copy of its Complaint against La Mesa had been served by certified mail on Maki, La Mesa's registered agent, on October 25, 2010. [Id.]. La Mesa did not file a responsive pleading. Zokaites Properties moved for a default judgment on November 30, 2010, claiming that it was entitled to a monetary award of $363,888.20. [ECF No. 4 at 1-2]. The amount of damages claimed by Zokaites Properties included $5,305.20 in interest accrued between October 2, 2010, and November 30, 2010. [Id. at 2]. The Court of Common Pleas proceeded to enter a default judgment against La Mesa in the amount of $363,888.20. [ECF No. 5].

On December 20, 2010, Zokaites Properties filed a "notice of filing of foreign judgment" in the District Court of Colfax County, New Mexico. [ECF No. 11 at 139-140]. Zokaites Properties filed a "complaint in foreclosure of judgment lien" in the District Court of Colfax County on February 10, 2011, seeking to foreclose on La Mesa's property in New Mexico in order to satisfy the judgment entered in Pennsylvania. [Id. at 124-127]. La Mesa responded on February 11, 2011, by filing a petition to strike the default judgment in the Court of Common Pleas of Allegheny County. [ECF No. 6 at 1-19]. That petition was accompanied by an alternative petition to open the default judgment.*fn2 [Id.]. In support of its position, La Mesa argued, inter alia, that it had not received actual notice of this action until after the default judgment had already been entered. [Id. at 4]. Zokaites Properties responded to La Mesa's petitions on February 21, 2011, by filing an amended affidavit of service. [ECF No. 9]. Unlike the original affidavit of service, the amended affidavit of service contained a copy of an electronic signature made by "J. Flowers" on October 25, 2010. [Id. at 6]. At that point, it was apparent that Maki had not signed for the Complaint himself.

A hearing on La Mesa's petitions was held before Judge Timothy Patrick O'Reilly on February 22, 2011. [ECF No. 13 at ¶ 13]. On February 25, 2011, Judge O'Reilly signed an order denying La Mesa's petitions. [ECF No. 13-1]. That same day, La Mesa filed a notice of removal pursuant to 28 U.S.C. §§ 1441 and 1146, seeking to remove the action to this Court. [ECF No. 1]. In its notice of removal, La Mesa indicated that its petitions in the Court of Common Pleas were still pending. [Id. at ¶ 12]. Judge O'Reilly's order denying La Mesa's petitions was docketed on February 28, 2011. [ECF No. 58-2 at 4]. It was on that day that exhibits filed in support of La Mesa's notice of removal were entered onto the docket in this Court. [ECF Nos. 3-11].

On March 2, 2011, Zokaites Properties filed a motion to remand, asking that the case be returned to the Court of Common Pleas for further proceedings. [ECF No. 13 at ¶¶ 23-35]. Zokaites Properties also moved for an award of costs and counsel fees pursuant to 28 U.S.C. § 1447(c).*fn3 [Id. at ¶¶ 36-39]. That same day, La Mesa filed a motion to reopen its bankruptcy case in the Bankruptcy Court. [ECF No. 41 at ¶ 4]. La Mesa sought to reopen the bankruptcy case for the sole purpose of ascertaining whether Zokaites Properties had improperly commenced this action before Judge Alquist's order terminating the automatic stay under § 362(a) had been formally entered on the Bankruptcy Court's docket. Zokaites Properties responded on March 4, 2011, by filing a motion in the Bankruptcy Court to make the order terminating the automatic stay effective as of September 29, 2010, and dismiss La Mesa's motion to reopen. [Id. at ¶ 5]. A hearing before Judge Alquist was scheduled for June 14, 2011. [Id. at ¶ 6].

A hearing concerning Zokaites Properties' motion to remand was held in this Court before Judge Nora Barry Fischer on March 22, 2011. [ECF No. 26]. On March 28, 2011, La Mesa filed a "precautionary" notice of appeal in the Court of Common Pleas of Allegheny County, thereby appealing Judge O'Reilly's order of February 25, 2011, to the Pennsylvania Superior Court. [ECF No. 19-2 at 16-19]. On March 30, 2011, Zokaites Properties filed a "motion for sanctions in the nature of a default" in this Court, accusing La Mesa of attempting to obstruct justice. [ECF No. 19 at ¶¶ 22-27]. The motion was supplemented with additional filings one day later. [ECF Nos. 20 & 21]. Zokaites Properties filed the instant Motion to Dismiss on April 3, 2011, contending that the United States Supreme Court's decisions in Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923), and District of Columbia Court of Appeals v. Feldman, 460 U.S. 462 (1983), precluded this Court from reviewing Judge O'Reilly's order. [ECF No. 22].

La Mesa sought an order from the Pennsylvania Superior Court clarifying that the Pennsylvania courts had no jurisdiction in the case, since it had been removed to this Court. On April 19, 2011, the Superior Court denied the request without prejudice to La Mesa's ability to raise the issue of removal as a basis for challenging Judge O'Reilly's order. [ECF No. 30-1 at 2]. In an order dated April 25, 2011, the Superior Court stayed La Mesa's appeal pursuant to § 362(a). [ECF No. 37-1 at 2]. The order was issued to provide the Bankruptcy Court with an opportunity to consider the motions filed by La Mesa and Zokaites Properties, and to determine whether this action had been wrongfully commenced before the lifting of the automatic stay. Judge Fischer denied Zokaites Properties' "motion for sanctions in the nature of default" on April 27, 2011. [ECF No. 34]. In a Memorandum Opinion and Order dated May 19, 2011, Judge Fischer stayed this action pending the resolution of the parties' motions before the Bankruptcy Court and La Mesa's appeal before the Superior Court. [ECF No. 46]. Zokaites Properties' Motion to Remand and Motion to Dismiss were denied without prejudice. [ECF No. 47]. Zokaites Properties filed a motion for reconsideration on May 26, 2011, asking this Court to remand the case to the Court of Common Pleas pursuant to Rooker and Feldman. [ECF No. 48]. The motion for reconsideration was denied on June 9, 2011. [ECF No. 50].

The scheduled hearing was held in the Bankruptcy Court before Judge Alquist on June 14, 2011. [ECF No. 51-3]. During the hearing, Judge Alquist stated that her order of October 1, 2010, dismissing the bankruptcy case, and the entry of that order on the docket three days later, had merely reduced her earlier decision to writing. [Id. at 12]. She clarified that the automatic stay had been terminated on September 29, 2010, and that Zokaites Properties had not violated the automatic stay by commencing this action against La Mesa on October 1, 2010. [Id. at 12-14]. La Mesa's motion to reopen the bankruptcy case was denied. [ECF No. 51-2 at 2].

On April 16, 2012, the Superior Court quashed La Mesa's appeal. [ECF No. 58-2 at 3]. Relying on the language in 28 U.S.C. § 1446(d) directing a state court to "proceed no further" in a removed case "unless and until the case is remanded," the Superior Court held that the Pennsylvania courts could not entertain further proceedings in this case "unless and until" a remand was ordered by this Court. [Id. at 8-21]. In so holding, the Superior Court specifically recognized that Judge Fischer had denied Zokaites Properties' motion to remand without prejudice and retained jurisdiction over the matter. [Id. at 20]. The appeal was quashed without prejudice to La Mesa's ability to "renew its challenge" to Judge O'Reilly's order of February 25, 2011. [Id. at 21].

Zokaites Properties moved for a termination of the stay, and the reinstatement of its earlier Motion to Remand and Motion to Dismiss, on April 25, 2012. [ECF No. 61]. The motion was granted one day later. [ECF No. 62]. The previous order staying the case was vacated, the two motions previously filed by Zokaities Properties were reinstated, and a status conference was scheduled for May 3, 2012. [Id.]. At the status conference, Judge Fischer advised the parties that the two motions filed by Zokaities Properties needed to be resolved before any determination could be made as to whether the default judgment entered by the Court of Common Pleas should be reopened or set aside. [Id.].

On May 18, 2012, Judge Fischer disqualified herself from this case pursuant to 28 U.S.C. § 455. The case was ultimately reassigned to the undersigned. Both parties have consented to the jurisdiction of a United States Magistrate Judge. [ECF Nos. 68, 69]. The reinstated Motion to Remand and Motion to Dismiss filed by Zokaites Properties are the subject of this Memorandum Opinion.

III. THE MOTION TO DISMISS

A motion to dismiss filed pursuant to Federal Rule of Civil Procedure 12(b)(1) challenges a federal court's subject-matter jurisdiction to entertain a plaintiff's claims. FED. R. CIV. P. 12(b)(1). "At issue in a Rule 12(b)(1) motion is the court's 'very power to hear the case.'" Judkins v. HT Window Fashions Corp., 514 F. Supp. 2d 753, 759 (W.D. Pa. 2007), quoting Mortensen v. First Federal Savings & Loan Association, 549 F.2d 884, 891 (3d Cir. 1977). The party asserting that jurisdiction exists bears the burden of showing that the ...


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