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In re Wilson

United States District Court, E.D. Pennsylvania

December 27, 2016

IN RE EARL WILSON Bankruptcy No. 14-12720



         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”).

         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.

         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 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” 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 ...

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