United States District Court, W.D. Pennsylvania
PARADISE BAXTER UNITED STATES DISTRICT JUDGE
Relevant Factual and Procedural History
August 1, 2013, a fire destroyed the Beach Club, a historical
property owned by the Trustees of Conneaut Lake Park, Inc.
("Trustees") and managed by Park Restoration, LLC.
As a result of the fire, Park Restoration, the Trustees, and
four Taxing Authorities asserted competing claims to $611,
000 in insurance proceeds.
accordance with state law, the insurer required its insured,
Park Restoration, to obtain a certificate from the local
municipal treasurer stating whether back taxes were owed on
the property. Park Restoration received a certificate
showing the Trustees owed $478, 260.75 in delinquent property
taxes. These delinquent taxes dated to 1996, well
before Park Restoration signed its management agreement with
the Trustees in 2008, and the delinquent taxes were owed on
the entire 55.33-acre parcel on Conneaut Lake, not just the
single acre that included the Beach Club.
of the tax delinquency, the insurer notified Park Restoration
that it would transfer $478, 260.75 of the $611, 000
insurance proceeds to the Taxing Authorities. Park
Restoration filed a declaratory judgment action in the Court
of Common Pleas of Crawford County and the insurer
interpleaded the $611, 000 with the state court. The Trustees
filed for bankruptcy and the declaratory judgment action was
transferred to the United States Bankruptcy Court for the
Western District of Pennsylvania.
Bankruptcy Court, Park Restoration argued that 40 Pa. Stat.
638 "applies solely to those situations where the fee
owner of the property is insured and where the tax
liabilities at issue are the financial responsibility of the
owner as well." In re Trustees of Conneaut Lake
Park, Inc., 543 F.R.D. 193, 198 (Bankr. W.D. Pa. 2015).
The Trustees responded that Park Restoration was not entitled
to any of the insurance proceeds because Park Restoration
insured the Trustees' property and they sought the
remaining insurance proceeds after the Taxing Authorities
Bankruptcy Court granted partial summary judgment for the
Taxing Authorities and Park Restoration holding that under
§ 638 the Taxing Authorities had a right to full payment
of the delinquent taxes ($478, 260.75), and that Park
Restoration, as the named insured, was entitled to the
balance of the insurance proceeds.
Restoration and the Trustees filed cross-appeals to the
United States District Court for the Western District of
Pennsylvania. Park Restoration argued, for the first time,
that because the insured property constituted only 9% of the
tax value of the 55.33-acre parcel, Park Restoration's
insurance proceeds should apply pro rata to the tax debt. It
also argued that anything more would be an unconstitutional
taking under both the Pennsylvania and U.S. Constitutions.
Meanwhile, the Trustees claimed entitlement to the balance of
the insurance proceeds because they owned the Beach Club. The
District Court affirmed the Bankruptcy Court's summary
judgment for Park Restoration as against the Trustees, but
reversed the Bankruptcy Court's summary judgment for the
Taxing Authorities as against Park Restoration. In re
Trustees of Conneaut Lake Park Inc., 551 B.R. 577,
584-85 (W.D. Pa. 2016).
Taxing Authorities appealed the District Court's judgment
to the Third Circuit which reversed the District Court
holding that "without a legally cognizable property
interest [in the insurance proceeds], Park Restoration [had]
no cognizable takings claim." In re Trustees of
Conneaut Lake Park Inc., 855 F.3d 519, 526 (3d Cir.
Bankruptcy Court confirmed the Trustees' plan of
reorganization. ECF No. 7, Appendix at page 0262. The plan
provided that the Taxing Authorities' claim was to be
paid in full, using in part, the insurance
Park Restoration initiated this adversary proceeding in the
Bankruptcy Court arguing that because $478, 260.75 of the
insurance proceeds was paid to the Taxing Authorities on
account of the Secured Tax Claims, Park Restoration may now
step into the shoes of the Taxing Authorities and seek
payment from the Trustees through 11 U.S.C. § 509. In
response to the subrogation claim, the Trustees moved to
dismiss arguing, inter alia, that Park Restoration
failed to state a claim because it did not meet the technical
requirements of § 509. After a detailed analysis, the
Bankruptcy Court dismissed the complaint holding that Park
Restoration failed to state a claim for subrogation as
contemplated by § 509. ECF No. 7, Appendix at pages
here is Park Restoration's appeal from the September 29,
2018 Bankruptcy Court order dismissing the amended complaint
at Adversary Proceeding No. 18-1024 with prejudice. The
parties agree that the issue here is whether the Bankruptcy
Court erred in finding that Park Restoration failed to state
a claim for subrogation under the Bankruptcy Code.
Standard of Review
Court has jurisdiction over the appeal under 28 U.S.C. §
158 and ...