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Thomas v. City of Philadelphia

United States District Court, E.D. Pennsylvania

August 21, 2017

MILTON THOMAS, SR, Plaintiff,
v.
CITY OF PHILADELPHIA, et al., Defendant.

          OPINION

          Slomsky, J.

         I. INTRODUCTION

         This case involves allegations that Defendants the City of Philadelphia and the School District of Philadelphia (collectively the "City" or "City Defendants") attempted to collect debts that had been discharged in Plaintiff Milton Thomas Sr.'s bankruptcy, in violation of the discharge injunction entered under 11 U.S.C. § 524.[1] The United States Court of Appeals for the Third Circuit remanded this action to this Court with instruction to determine if the City had notice of the bankruptcy and what effect, if any, such notice has on the current Complaint.

         The City has now filed a Motion for Judgment on the Pleadings in an attempt to strip the Court of jurisdiction to resolve this case. For reasons that follow, the Court will deny Defendants' Motion for Judgment on the Pleadings (Doc. No. 39), and will impose a sanction in the amount of $10, 100 on Defendants for violating the discharge injunction, which will be awarded to Plaintiff.

         II. BACKGROUND

         In 2004, Thomas filed for bankruptcy under Chapter 13 of the Federal Bankruptcy Code. In the bankruptcy proceeding, Thomas filed proof of claims[2]-or debts-owed to the City for three properties he owned: 1618 S. 58th Street, 1620 S. 58th Street, and 1251 S. Ruby Street, [3] all in Philadelphia, Pennsylvania. These debts related to real estate taxes on the properties, which Thomas failed to pay.

         A Chapter 13 bankruptcy enables an individual debtor to propose a repayment plan and make installments to his creditors over three to five years. Harris v. Viegelahn, 135 S.Ct. 1829, 1835 (2015) (citing 11 U.S.C. §§ 1306(b), 1322, 1327(b)). Secured creditors who have notice of a bankruptcy may file a proof of claim to establish the debtor's obligation. 11 U.S.C. § 501(a). Secured creditors who fail to do so may face a "cramdown" of their secured claims.[4] Generally speaking, the debtor is entitled to a discharge once he completes the Chapter 13 plan, thereby obtaining his "fresh start."[5] Harris, 135 S.Ct. at 1835. The discharge releases the debtor from all debts provided for by the plan ("pre-petition debts"), with limited exceptions. 11 U.S.C. § 524. Creditors may no longer continue any collection action against the debtor to recoup discharged obligations.[6]

         On August, 26, 2004, noting that there was "no answer or appearances by respondent, " the Bankruptcy Court entered a cramdown order with respect to the debts on the properties at 1618 S. 58th Street and 1620 S. 58th Street. See In re Thomas, Bankr. E.D. Pa. 04-10175-elf, dkt. #54. After completing the Chapter 13 plan more than five years later, Thomas received a discharge. Id. at dkt. #129.

         On June 13, 2015, Thomas initiated this action against the City alleging that it was attempting to collect debts that had been discharged in the earlier bankruptcy. (Doc. No. 3.) Specifically, Thomas claimed that the City was attempting to collect outstanding real estate taxes incurred from 1984 to 2004 on the 1618 S. 58th Street and 1620 S. 58th Street properties, which had been previously discharged in the bankruptcy. (Id. at 1-2.) Thomas sought an injunction prohibiting the sale of the two properties, as well as compensatory and punitive damages for Defendants' violation of the bankruptcy discharge. (Id. at 2.)

         On February 3, 2016, Defendants moved to dismiss the Complaint on the grounds of res judicata, or claim preclusion. (Doc. No. 22.) They argued that although this "dispute concerns the real property located at 1618 S. 58th Street and 1620 S. 58th Street, " an earlier action Thomas filed in United States Bankruptcy Court for the Eastern District of Pennsylvania involving the 1251 S. Ruby Street property should bar this instant case. (Doc. No. 13.) On July 7, 2016, in an Opinion and Order, this Court granted Defendants' Motion to Dismiss. (Doc. Nos. 28, 29.)

         On March 16, 2017, the United States Court of Appeals for the Third Circuit decided that Thomas's claims were not barred by claim preclusion or issue preclusion, [7] and remanded the case. This Court was instructed to "decide anew, in the context of Thomas's current complaint, and after providing the parties with notice and an opportunity to be heard, whether the City had sufficient notice of Thomas's bankruptcy." Thomas v. City of Philadelphia, 624 F.App'x 174, 177-78 (3d Cir. 2017) (internal citations omitted). If this Court "determines that the City had notice of the 2004 bankruptcy, then it will decide what effect, if any, the discharge had on the matters in Thomas's current complaint." Id. at 178.

         In accordance with the Third Circuit's decision, this Court scheduled a status conference with the parties. (Doc. No. 36.) On May 9, 2017, at the conference, the parties informed the Court of the current status of the two properties at issue in this case: 1618 S. 58th Street and 1620 S. 58th Street.

         With respect to the property located at 1620 S. 58th Street, the City explained that the property was sold at sheriff's sale on July 15, 2015 for approximately $10, 000. (Doc. No. 41 at 16:21-18:13.) The City admitted that the 1620 S. 58th Street property was sold on the basis that Thomas had not paid real estate taxes for the residence, including those pre-petition taxes incurred between 1983 and 2004. (Id. at 16:18-18:13.) Thomas stated that he suffered a significant loss from the sale of 1620 S. 58th Street. (Id. at 18:14-19:3.) For example, he noted that he was receiving $650 per month in rental income from this property before it was sold. (Id. at 18:18-20.) For the City's sale of the 1620 S. 58th Street property, Thomas requested damages including the appraisal value of the property at the time it was sold, the unearned rental income that he would have received on the property, and punitive damages to penalize the City for its conduct.[8] (See Id. at 18:14-19:3.)

         Turning to the property located at 1618 S. 58th Street, the City had stayed the collection action for unpaid real estate taxes and the pending sheriff's sale of the property. (Doc. No. 41 at 7:23-8:9.) The Court noted that the basis for Defendants' collection measures concerning the 1618 S. 58th Street property included unpaid real estate taxes Thomas incurred from 1983 through 2004, which had previously been discharged in the bankruptcy. (Id. at 7:23-8:23, 12:22-13:2.) Significantly, with respect to both properties, the City "admit[ted] that it had notice of the bankruptcy." (Id. at 9:12-13.) Defendants then pointed out that Thomas had not paid any real estate taxes on the property from 2005 through 2017 ("post-petition debts"), and argued that these outstanding liabilities could be the basis of a future sheriff sale on the property. (Id. at 8:20-23.) Thomas conceded that he had not paid real estate taxes on the property post-bankruptcy. (Id. at 13:3-15:4.) In terms of relief, Thomas requested that the Court order the City to vacate the pending sheriff's sale and to declare that he no longer owed real estate taxes from 1983 to 2004 on 1618 S. 58th Street. (Id. at 14:16-15:1.)

         In addition, at the May 9, 2017 status conference, the City raised for the first time the argument that this Court lacked jurisdiction over this case. (Id. at 11:8-12:8.) The City subsequently briefed this issue and filed the Motion for Judgment on the Pleadings. (Doc. No. 39.)

         At the conclusion of the status conference, the Court advised the parties that it may be in their best interest to reach a settlement since the City conceded that it had notice of the bankruptcy. (Doc. No. 41 at 25:1-19.) However, if they were unable to do so, the Court would schedule a second hearing at which the parties could present evidence "on what effect, if any, the discharge had on matters in Thomas's current complaint." (Id. at 31:7-12.)

         The parties were unable to reach a settlement. On July 31, 2017, the Court held an evidentiary hearing to determine what effect the discharge had on matters in the Complaint. (Id; Doc. No. 40.) At the second hearing, the parties stipulated that the City had notice of Thomas's bankruptcy. (Doc. No. 49 at 5:8-17.)

         The parties then updated the Court of the status of both properties at issue. The City again admitted that the property located at 1620 S. 58th Street was sold at sheriff's sale for $10, 100, partly to recover outstanding pre-petition taxes that had been discharged. (Id. at 16:23- 17:2.) Despite the fact that the City had notice of the bankruptcy and violated the discharge injunction, the City argued that Thomas should not be awarded any damages because it only collected $4, 487.48 from the proceeds of the sale.[9] (Id. at 17:7-10.) Furthermore, Thomas owed post-petition real estate taxes on the property, which totaled $11, 024.67. (Id. at 17:6-7.) Thus, the City argued that it did not profit from the sale. The City called Karena Baylock, an employee at the Law and Revenue Department of the City of Philadelphia, to testify about the City's tax records and the amount of real estate taxes owed for the properties at issue. Baylock confirmed the amount of real estate taxes owed on both properties.[10]

         In terms of the 1618 S. 58th Street property, the City explained that the collection action and pending sheriff sale had been stayed. (Id. at 73:23-78:1.) Again, the City admitted that this collection action included pre-petition taxes. (Id.) However, the City asserted that Thomas owed approximately $26, 151.16 in post-petition taxes. (Id. at 18:8-19.) Given the fact that Thomas owed post-petition taxes, the City argued that it was entitled to continue its collection and sale measures on the property. The Court, however, informed the City that continuing collection efforts that relied in part on pre-petition debts to which the City was not entitled was in direct violation of the discharge injunction. (Id. at 73:23-78:1.) Therefore, the Court advised the City that it could withdraw the collection action and pending sheriff sale of the 1618 S. 58th Street property.[11] (Id.) Immediately following the hearing, the City filed a discontinuance in the collection case and pending sale of the 1618 S. 58th Street property. (Doc. No. 43.)

         After providing the parties with notice and an opportunity to be heard at the status conference and the evidentiary hearing, the Court will now determine "what effect, if any, the discharge had on the matters in Thomas's current complaint." Thomas, 624 F.App'x at 178. It will also dispose of Defendants' Motion for Judgment on the Pleadings.

         III. STANDARD OF REVIEW

         "After the pleadings are closed-but early enough not to delay trial-a party may move for judgment on the pleadings." Fed.R.Civ.P. 12(c). In deciding a motion for judgment on the pleadings, a court must consider only those documents contained in the pleadings. See Moco Invs., Inc. v. United States, 362 F.App'x 305, 307 n.4 (3d Cir. 2010) (explaining that the district court's consideration of documents outside the pleadings converted the motion for judgment on the pleadings into a motion for summary judgment).

         A motion for judgment on the pleadings is analyzed under the same standard as a motion to dismiss under Fed.R.Civ.P. 12(b)(6). See Spruill v. Gillis. 372 F.3d 218, 223 n.2 (3d Cir. 2004) (explaining that "there is no material difference in the applicable legal standards" for Rule 12(b)(6) and Rule 12(c) motions). Like a motion to dismiss, under Rule 12(c), "the trial court must view the facts in the pleadings in the light most favorable to plaintiff and must grant the motion only if the moving party establishes that no material issues of fact remains and that it is entitled to judgment as a matter of law." Shelly v. Johns-Manville Corp., 798 F.2d 93, 97 n.4 (3d Cir. 1986); see also Rosenau v. Unifund Corp., 539 F.3d 218, 221 (3d Cir. 2008) (quoting Jablonski v. Pan Am. World Airways. Inc.. 863 F.2d 289, 290 (3d Cir. 1988)). A motion for judgment on the pleadings will only be granted where "the plaintiffs would not be entitled to relief under any set of facts that could be proved." Green v. Fund Asset Memt. L.P.. 245 F.3d 214, 220 (3d Cir. 2001).

         IV. ANALYSIS

         A. The Motion for Judgment on the Pleadings Will Be Denied Because This ...


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