United States District Court, Western District of Pennsylvania
Maurice B. Cohill, Jr. Senior United States District Court Judge
Pending before the Court is an Appeal from Bankruptcy Court [ECF No. 1] filed by the Housing Authority of the City of Pittsburgh ("HACP"). In its Appeal, HACP asserts that the Bankruptcy Court wrongly decided the case below in favor of Defendant, Angel Smith ("Smith"). More specifically, HACP asserts that the Bankruptcy Court relied on a flawed analysis when they found that Smith's public housing lease is akin to a "grant" under 11 U.S.C. § 525(a), and therefore, HACP may not evict Smith post-discharge without violating the discharge injunction or the anti-discrimination provisions of the Bankruptcy Code [ECF No. 10 at 7]. For the following reasons, we find in favor of HACP and reverse the decision of the Bankruptcy Court.
I. Procedural History
Smith filed for protection under Chapter 13 of the Bankruptcy Code after failing to pay rent when due and failing to report all household income as required by the lease [ECF No. 10 at 8]. After several years in Chapter 13 bankruptcy, Smith fell behind in her monthly plan payments and converted her case to Chapter 7 bankruptcy [ECF No. 10 at 8]. Sixty (60) days after Smith converted her case, Smith's lease was rejected as a matter of law pursuant to 11 U.S.C. § 365(d)(1)[ECF No. 10 at 8]. HACP sought a declaratory judgment from the Bankruptcy Court regarding the effect of the Bankruptcy Code's anti-discrimination provision (11 U.S.C. § 525(a)) on a public housing authority lease [ECF No. 10 at 8]. Specifically, HACP sought a declaration that it could evict Smith without violating 11 U.S.C. §§ 524 or 525 [ECF No. 10 at 8]. The Bankruptcy Court ruled against HACP and held that a public housing lease was protected by 11 U.S.C. § 525(a) because it is a "similar grant" to a license, charter, permit or franchise, which are protected under the statute [ECF No. 10 at 8]. As a result, HACP filed the Appeal before this Court [ECF No. 1]. HACP filed a Brief in support of its Appeal on September 11, 2014 [ECF No. 10]. Smith filed a Brief in Opposition on October 27, 2014 [ECF no. 14]. HACP filed its Reply Brief on November 10, 2014 [ECF No. 16].
II. Relevant Facts
Smith currently resides in the Homewood North Community, a community owned and operated by HACP [ECF No. 10 at 9]. The Homewood North Community contains only townhouse-type rental units each with features of a refrigerator, gas stove, free parking, and an enclosed yard as well as a community room [ECF No. 10 at 9]. The Homewood North Community also has added security with security cameras throughout the community and an on-site manager to assist the residents [ECF No. 10 at 9]. HACP considers Homewood North Community to be one of its more desirable communities which is evidenced by its waiting list of over 200 individuals and families who have expressed an interest in living there [ECF No. 10 at 9].
Smith and HACP first entered into a Rental Lease Agreement ("Lease") on June 9, 2000 [ECF No. 10 at 10]. Smith moved to a new property in 2010 and signed an Addendum to the Lease ("Addendum") on May 18, 2010 [ECF No. 10 at 10]. On October 1, 2010 HACP and Smith entered a second Rental Lease Agreement ("2010 Lease"), which carried with it all of Smith's delinquencies under the original Lease and Addendum [ECF No. 10 at 10]. The terms of the 2010 Lease required Smith to go through an annual Re-Determination process, which includes reporting any changes in income to HACP within 10 days to ensure her eligibility for public housing and the accuracy of the rent calculation [ECF No. 10 at 10]. Smith defaulted under the terms of the 2010 Lease by failing to pay rent when due and by failing to disclose additional household income [ECF No. 10 at 10]. The failure to disclose the additional household income resulted in a significant back-charge of rent to Smith [ECF No. 10 at 10].
When Smith filed a voluntary petition for relief under Chapter 13 of the Bankruptcy Code on March 10, 2009 she owed HACP over $8, 500.00 in past due rent [ECF No. 10 at 11]. Subsequently Smith failed to make all of the payment due under her Chapter 13 Plan and by September 18, 2012 she still had $2, 640.00 owing in past due plan payments [ECF No. 10 at 11]. Smith converted her Chapter 13 case to a Chapter 7 case on February 21, 2013 [ECF No. 10 at 11]. To date Smith has not cured the pre-conversion monetary defaults of the 2010 Lease, however, Smith still intends to remain in the HACP property [ECF No. 10 at 11]. HACP would like to evict Smith because of the failure to cure the defaults and because the Chapter 7 Trustee has rejected the 2010 Lease as part of the bankruptcy estate [ECF No. 10 at 11].
III. Legal Analysis
11 U.S.C. § 525 ("Protection against discriminatory treatment") provides:
(a)... a governmental unit may not deny, revoke, suspend, or refuse to renew a license, permit, charter, franchise, or other similar grant to, condition such a grant to, discriminate with respect to such a grant against, deny employment to, terminate the employment of, or discriminate with respect to employment against, a person that is or has been a debtor under this title or a bankrupt or a debtor under the Bankruptcy Act, or another person with whom such bankrupt or debtor has been associated, solely because such bankrupt or debtor is or has been a debtor under this title or a bankrupt or debtor under the Bankruptcy Act, has been insolvent before the commencement of the case under this title, or during the case but before the debtor is granted or denied a discharge, or has not paid a debt that is dischargeable in the case under this title or that was discharged under the Bankruptcy Act. 11 U.S.C.A. § 525 (West)
For Section 525(a) to apply, preventing HACP from evicting Smith the three following elements must be satisfied:
(1) The prohibitive conduct must have been performed by a governmental unit;
(2) The governmental unit must have denied, revoked, suspended or refused to renew a license, permit, charter, franchise or other similar ...