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In re Veltre

United States District Court, W.D. Pennsylvania

August 14, 2017

In Re MARGARET ADELINE VELTRE, Debtor,
v.
FIFTH THIRD BANK, Appellee. Margaret Adeline Veltre, by her attorney in fact DINA MILLER Appellant Bankruptcy No. 16-23699-CMB Adversary Proceeding No. 16-2213 CMB

          OPINION

          CONTI, CHIEF DISTRICT JUDGE.

         I. Introduction

         The matter pending before this court is an appeal from the January 27, 2017, Order issued by the United States Bankruptcy Court for the Western District of Pennsylvania and entered in Adversary Proceeding No. 16-2213. (ECF No. 1-3.) The bankruptcy court dismissed, with prejudice, the November 17, 2016, complaint filed by appellant-debtor Margaret Adeline Veltre by her attorney in fact Dina Miller (“debtor”) against appellee Fifth Third Bank (“Fifth Third” or “appellee”), which sought to avoid the sheriff's sale of her house as a preference under 11 U.S.C. § 547. (Id.; ECF No. 6 at 1.) The bankruptcy court explained its reasons for dismissing debtor's complaint in a Memorandum Opinion dated January 27, 2017. (ECF No. 1-1.) This court has jurisdiction over the present appeal in accordance with 28 U.S.C. § 158(a). Venue is proper in this judicial district pursuant to 28 U.S.C. §§ 1408 and 1409.

         On February 6, 2017, debtor filed an appeal in this court. (ECF No. 6.) On June 9, 2017, Fifth Third filed a brief in opposition. (ECF No. 9.) Debtor seeks review of the bankruptcy court's order granting Fifth Third's motion to dismiss debtor's complaint and upholding the sheriff's sale of debtor's property.

         For the reasons set forth below, the court concludes that, as a matter of law, a sheriff's sale conducted in Pennsylvania cannot be an avoidable preference under 11 U.S.C. § 547, because the price attained at a validly conducted sheriff's sale is as much as or more than the value that would be assigned to the property in a hypothetical Chapter 7 liquidation, and, therefore, a creditor cannot receive more through a sheriff's sale than it would receive under a hypothetical Chapter 7 liquidation.

         II. Factual and Procedural Background

         The facts underlying this appeal are undisputed. (ECF No. 6 at 1.) Debtor owned residential property located at 2317 Haymaker Road, Monroeville, PA 15416 (the “property”), which she used as her home.[1] (Id.) Debtor had two mortgages on the property: the first granted in favor of Capital One Bank (“Capital One”) and the second granted in favor of appellee, Fifth Third. (Id.)

         After debtor failed to make the required mortgage payments to Capital One for approximately eighteen months, Capital One initiated foreclosure proceedings by filing a Complaint for Mortgage Foreclosure in the Allegheny County Court of Common Pleas in December 2014. (ECF No. 9 at 6.) In May 2015, the Allegheny County Court of Common Pleas entered a default judgment, and on June 10, 2015, Capital One obtained a writ of execution for the property. (Id.) On July 5, 2016, the Allegheny County Sheriff sold the property at a regularly conducted sheriff's sale. (Id.) The property was sold to Fifth Third for $90, 000, which was sufficient to pay the debt due Capital One. (ECF No. 1-1, 2.) On August 15, 2016, the Sheriff's Office of Allegheny County issued a sheriff's deed to Fifth Third in compliance with the Allegheny County Recorder of Deeds' and applicable sheriff's sale procedures. (ECF No. 9 at 6.) On October 2, 2016, the 90th day after the sale, debtor filed a petition for relief under Chapter 11 of the Bankruptcy Code. (ECF No. 6 at 2.) Debtor did not challenge the foreclosure proceedings prior to initiating bankruptcy proceedings and agrees with Fifth Third that the sheriff's sale complied with applicable state law. (ECF No. 9 at 6.)

         On November 17, 2016, debtor commenced an adversary proceeding against Fifth Third alleging Fifth Third's purchase of the property was an avoidable preference under 11 U.S.C. § 547. Debtor maintains that Fifth Third received a preference of approximately $80, 000.[2] (ECF No. 6 at 2; ECF No. 1-1 at 3.) On December 16, 2016, Fifth Third filed a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). (ECF No. 1-1 at 2.) After a hearing on Fifth Third's motion on January 19, 2016, the United States Bankruptcy Court for the Western District of Pennsylvania dismissed the adversary complaint. (Id. at 5.) The bankruptcy court determined that, as a matter of law, the execution of a properly conducted non-collusive sheriff's sale is not a preferential transfer under 11 U.S.C. § 547(b). The court came to this conclusion based in large part on BFP v. Resolution Trust Corporation, 511 U.S. 531 (1994). In BFP, a debtor challenged a sheriff's sale under the fraudulent transfer provisions of the Bankruptcy Code, 11 U.S.C. § 548. Section 548 provides that a trustee may avoid a transfer if, among other things, the transferor did not receive a reasonably equivalent value for the property; in other words, it would be a constructively fraudulent transfer.11 U.S.C. § 548. The Supreme Court held that a sheriff's sale of property cannot be a fraudulent transfer because the price obtained at a foreclosure sale constitutes a reasonably equivalent value as a matter of law under 11 U.S.C. § 548. (ECF 1-1.) In this case, the bankruptcy court applied the Supreme Court's reasoning as it related to § 548, and held that “property sold at a properly conducted and otherwise non-collusive foreclosure sale may not serve as the basis of a preference action under 11 U.S.C. § 547.” (Id. at 2.)

         On February 2, 2017, debtor filed a notice of appeal. (Id.) Debtor argues that the bankruptcy court's application of BFP was incorrect, and that in accordance with the plain language and legislative history of § 547, this court should find that the sheriff's sale of debtor's property met the requirements for a preferential transfer under § 547. Debtor argues the sheriff's sale was a transfer that permitted Fifth Third to receive a greater amount than it would have received under a hypothetical Chapter 7 liquidation, and, thus, is an avoidable preference under § 547(b)(5). (ECF No. 6 at 2.) Fifth Third filed a response on February 19, 2015. (ECF No. 9 at 1.) Fifth Third argues that the bankruptcy court correctly applied the Supreme Court's reasoning in BFP, and that in accordance with this precedent the transfer of property pursuant to a non-collusive sheriff's sale cannot be avoided as a preference under § 547. (Id. at 7.) Having been fully briefed, the matter is ripe for disposition.

         III. Standard of Review

         Federal district courts have appellate jurisdiction over final judgments, orders, and decrees of the bankruptcy court. 28 U.S.C. 158(a)(1). “Upon appeal of a ruling from bankruptcy court, this Court reviews the Bankruptcy Court's legal conclusions de novo, its factual findings for clear error, and its exercise of discretion for abuse thereof.” In re Gisondi, Civ. Action No. 13-6147, 2014 WL 683755, at *2 (E.D. Pa. Feb. 21, 2014) (citing In re Goody's Family Clothing, Inc., 610 F.3d 812, 816 (3d Cir. 2010)); see Friedman's Liquidating Tr. v. Roth Staffing Cos. LP. (In re Friedman's Inc.), 738 F.3d 547, 551-52 (3d Cir. 2013); Baroda Hill Invest., Ltd v. Telegroup, Inc. (In re Telegroup, Inc.), 281 F.3d 133, 136 (3d Cir. 2002). When a case involves mixed questions of law and fact, the court “must differentiate between those two categories and ‘apply the appropriate standard to each component.' ” Montgomery Ward & Co., Inc. v. Meridian Leasing Corp. (In re Montgomery Ward Holding Corp.), 326 F.3d 383 (3d Cir. 2003) (quoting United States of America v. Fegeley (In re Fegeley), 118 F.3d 979, 982 (3d Cir. 1997)).

         IV. Discussion

         Debtor seeks to avoid the transfer of her property to Fifth Third as a preferential transfer, in accordance with 11 U.S.C § 547. Under § 547, in order to maintain an action to avoid a preferential transfer, a plaintiff must establish that the transfer of an interest of the debtor in property was:

(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;
(3) made while the debtor was ...

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