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Ferrone v. Cardiello

United States District Court, Western District of Pennsylvania

December 18, 2014

ROCK FERRONE, Appellant,


Arthur J. Schwab United States District Judge

This Court has written many times on the numerous appeals that have surfaced with respect to this Chapter 11 Bankruptcy. Presently before the Court, is Rock Ferrone’s appeal of a Bankruptcy Court Order that determined that a particular asset – a building – was part of the bankruptcy estate and thus, subject to the sale of all of the Debtor’s assets.

I. Jurisdiction and Standard of Review

This Court has jurisdiction over this appeal pursuant to 28 U.S.C. § 158(a). A district court sits as an appellate court in bankruptcy proceedings. In re Michael, 699 F.3d 305, 308 n.2 (3d Cir. 2012).

The standards of review which apply to this case are as follows:

First, this Court cannot disturb the factual findings of a bankruptcy court unless they are clearly erroneous. In re Gray, 558 Fed.Appx. 163, 166 (3d Cir. March 7, 2014); see also Accardi v. IT Litig. Trust (In re IT Group, Inc.), 448 F.3d 661, 667 (3d Cir. 2006). A factual finding is “clearly erroneous” if the reviewing court is “left with a definite and firm conviction that a mistake has been committed.” In re W.R. Grace & Co., 729 F.3d 311, 319, n.14 (3d Cir. 2011); see also Gordon v. Lewistown Hosp., 423 F.3d 184, 201 (3d Cir. 2005). Under the clearly erroneous standard, it is the responsibility of an appellate court to accept the ultimate factual determinations of the fact-finder unless that determination is either: (1) completely devoid of minimum evidentiary support displaying some hue of credibility, or (2) bears no rational relationship to the supportive evidentiary data.” DiFederico v. Rolm Co., 201 F.3d 200, 208 (3d Cir. 2000) (citations omitted).

Second, this Court exercises plenary, or de novo, review over any legal conclusions reached by the bankruptcy court. In re Ruitenberg, 745 F.3d 647, 650 (3d Cir. March 13, 2014); see also Am. Flint Glass Workers Union v. Anchor Resolution Corp., 197 F.3d 76, 80 (3d Cir. 1999).

Third, if the Bankruptcy Court’s decision is a mixed question of law and fact, this Court must break down the determination and apply the appropriate standard of review to each. In re Montgomery Ward Holding Corp., 326 F.3d 383, 387 (3d Cir. 2003). The Court should “apply a clearly erroneous standard to integral facts, but exercise plenary review of the court’s interpretation and application of those facts to legal precepts.” In re Nortel Networks, Inc., 669 F.3d 128, 137 (3d Cir. 2011) (citation omitted).

Finally, this Court reviews a bankruptcy court’s exercise of discretion for abuse. In re Friedman’s Inc., 738 F.3d 547, 552 (3d Cir. 2013). A bankruptcy court abuses its discretion when its ruling rests upon an error of law or a misapplication of law to the facts. In re O’Brien Environmental Energy, Inc., 188 F.3d 116, 122 (3d Cir. 1999).

II. Factual Background

The following facts are derived from Rock Ferrone’s Brief. See doc. no. 3, p. 3-5.

Rock Ferrone (“Ferrone”) is the sole shareholder of K-Cor, Inc., a Pennsylvania company that designs, manufactures, and sells newspaper equipment. In 1998, Ferrone purchased the land comprising an airstrip near Pittsburgh (“Rock Airport”) through an entity known as Rock Airport of Pittsburgh, LLC (“RAP”). In 2001, K-Cor, Inc. applied for, and received, a building permit to construct a new building for its business at Rock Airport. Also in 2001, Huntington Bank (f/k/a Skye Bank) loaned K-Cor, Inc. $144, 000.00 to build this new building at Rock Airport.

After construction of the new K-Cor, Inc. building was complete, RAP agreed to transfer the building to K-Cor, Inc., and subdivided the Airport Property so that it could make such a transfer. K-Cor, Inc. made the loan payments to Huntington Bank and paid the insurance on the building.

III. Procedural Background

The following information was obtained from docket entries filed with United States Bankruptcy Court for the Western District of Pennsylvania at case no, 09-23155-CMB. The docket entry numbers cited in this section correspond to case number 09-23155-CMB filed in the Bankruptcy Court’s docket, unless otherwise noted.

In 2009, RAP filed for relief under Chapter 11 of the Bankruptcy Code. Bk. doc. no. 1. On October 22, 2012, RAP filed a motion to sell all or substantially all of its assets. Bk. doc. no. 26. On October 31, 2012, K-Cor, Inc. filed an Objection to the sale, claiming it owned its own building and argued that this particular building should not be sold as part of RAP’s assets. Bk. doc. no. 230. This document noted, “[b]ecause Rock Ferrone is the principal of K-Cor, Inc. . . . and [RAP], no deed of conveyance was made between [RAP] and K-Cor, Inc. with regard to the parcel on which [K-Cor, Inc.] constructed the building . . . ”. Id., ¶ 4.

On April 23, 2013, Bankruptcy Judge Fitzgerald entered an order approving the appointment of Trustee Natalie Lutz Cardiello. Bk. doc. no. 327. On June 10, 2014, the Trustee filed an Amended Motion Seeking Order Approving Sale of Property Free and Clear of All Liens, Claims, and Encumbrances to Alaskan Property Management, LLC (“Alaskan”) pursuant to an Asset Sale and Purchase Agreement which had been executed by RAP and Alaskan on March 6, 2014. Bk. doc. no. 683. On June 27, 2014, the Trustee entered an Order which set deadlines pertaining to the asset sale from RAP to Alaskan. Bk. doc. no. 742. Within that Order, the Trustee explicitly stated, “[a]ny response, including a consent to the Motion, shall be filed with the Clerk of the Bankruptcy Court and served on the Moving Party and their counsel not later than the last date fixed in the Notice of Sale for Filing Objections to the sale which is 8/11/14.” Bk. doc. no. 742-2.

On August 21, 2014, the Bankruptcy Court held a hearing on the Motion to Sell Property Free and Clear of Liens Under Section 363(f) filed by Trustee Natalie Lutz Cardiello (bk. doc. no. 683), and during that hearing, Ferrone asserted that K-Cor, Inc., not RAP, owned the building and argued that the building should not be included in the asset sale. See bk. doc. no. 929. At the end of the hearing, the Bankruptcy Court approved the Motion to Sell Property, and in so doing, determined Alaskan was a good faith purchaser of RAP’s assets, but continued the evidentiary hearing as to the building which K-Cor, Inc. claimed it owned.

Pursuant to the Court’s Order entered during this August 21, 2014 hearing, on August 26, 2014, K-Cor, Inc. formally filed an Objection to the sale of the building, asserting that RAP did not own the building, and thus, argued that the building should not be part of sale of assets to Alaskan. Bk. doc. no. 938. On August 28, 2014, the Trustee filed a Response to K-Cor, Inc.’s Objection. Bk. doc. no. 939. In her Response, the Trustee noted that on July 11, 2014, the Trustee’s counsel served Ferrone and K-Cor, Inc. with a subpoena requesting the production of documents related to K-Cor, Inc.’s claim of ownership, but Ferrone failed to produce any documents in support of K-Cor’s claim of ownership. Id. As noted above, Ferrone admitted in at least one pleading, no deed transferring ownership from RAP to K-Cor, Inc. exists. See doc. no. 230, ΒΆ 4. The Trustee also noted that although Ferrone was asking for an extension of time so that his office ...

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