Sara Rosenberg v. DVI Receivables XVII LLC , 835 F.3d 414 ( 2016 )

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 15-2622
_____________
SARA ROSENBERG,
INDIVIDUALLY AND AS TRUSTEE OF THE
DOUGLAS ROSENBERG 2004 TRUST,
SEPARATELY AND AS GENERAL PARTNER OF
THE PENNSYLVANIA LIMITED PARTNERSHIPS
209 CHESTNUT ST. ASSOC., LP;
1501 EDGEMONT ASSOCIATES, LP;
1538 DEKALB ASSOCIATES, LP;
1561 MEDICAL DRIVES ASSOCIATES, LP;
IMAGING PROPERTIES OF ILLINOIS, LP;
IMAGING PROPERTIES OF PHILADELPHIA, LP;
IMAGING PROPERTIES OF ROXBOROUGH, LP;
LANE LIMITED PARTNERSHIP, IV,
Appellants
v.
DVI RECEIVABLES XVII, LLC; DVI FUNDING, LLC;
JANE FOX; LYON FINANCIAL SERVICES INC, d/b/a
U.S. BANK PORTFOLIO SERVICES;
U.S. BANK NA, A NATIONAL ASSOCIATION
ORGANIZED IN MINNESOTA
________________
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civil Action No. 2-14-cv-05608)
District Judge: Honorable Cynthia M. Rufe
________________
Argued March 1, 2016
Before: AMBRO, JORDAN and SCIRICA, Circuit Judges
(Opinion filed: August 29, 2016)
Lewis J. Pepperman (ARGUED)
Stark & Stark
993 Lenox Drive, Building 2
Lawrenceville, NJ 08648
Tucker H. Byrd
Scottie N. McPherson
180 Park Avenue North, Suite 2A
Winter Park, FL 32789
Counsel for Appellants
Craig A. Hirneisen
Stacey A. Scrivani
Stevens & Lee
111 North Sixth Street
P.O. Box 679
Reading, PA 19603
2
Peter H. Levitt (ARGUED)
Jack C. McElroy
Shutts & Bowen
200 South Biscayne Boulevard
Suite 4100
Miami, FL 33131
Counsel for Appellees
________________
OPINION OF THE COURT
________________
AMBRO, Circuit Judge
This appeal presents a question of federal preemption
law. In November 2008, DVI Funding, LLC and several
entities known as DVI Receivables filed involuntary
bankruptcy petitions against Maury Rosenberg and his
affiliated businesses. After the Bankruptcy Court dismissed
the involuntary petitions, Rosenberg recovered attorney’s
fees, costs, and damages under § 303(i) of the Bankruptcy
Code. Now Rosenberg’s wife and several limited
partnerships associated with Rosenberg—persons and entities
not named in the bankruptcy—have brought a tortious
interference claim under state law for damages allegedly
caused by the filing of the involuntary petitions. The District
Court concluded that this claim was preempted by the
Bankruptcy Code and dismissed the complaint. For the
reasons that follow, we reverse and remand, as we conclude
that § 303(i) does not preempt the state law claims of non-
debtors predicated on the filing of an involuntary bankruptcy
petition.
3
I.
It is an understatement to say that the factual
background and procedural history lurking behind this case
are complex. Our appeal is but one fragment of more than a
decade of ongoing litigation between Maury Rosenberg and
his medical imaging centers on the one side and U.S. Bank
and its affiliated entities on the other. By our estimate, that
litigation has produced 27 written opinions at almost every
level of the federal judiciary. But lucky for us (and our
readers), this case turns on a narrow question of federal
preemption law.
Rosenberg is the “principal architect” of National
Medical Imaging, LLC (“NMI”) and National Medical
Imaging Holding Company, LLC (“NMI Holding”). NMI
and NMI Holding are affiliated with various limited
partnerships (“NMI LPs”) that operate medical imaging
centers. To finance the purchase of medical imaging
equipment, the NMI LPs entered into leases with DVI
Financial Services, Inc., who transferred the leases to DVI
Funding, LLC. DVI Funding then held onto some of the
leases directly and securitized the rest, transferring them to
various entities with DVI Receivables in the name. DVI
Financial was the initial servicer of the leases and U.S. Bank
acted as trustee. When DVI Financial entered bankruptcy in
2004, Lyon Financial, a subsidiary of U.S. Bank, acquired the
servicing contracts.
During litigation in state court over money the NMI
LPs owed under the leases, DVI Funding and five DVI
Receivables entities filed involuntary bankruptcy petitions
against Rosenberg, NMI, and NMI Holding in the United
States Bankruptcy Court for the Eastern District of
4
Pennsylvania. Rosenberg transferred his case to the Southern
District of Florida, where the Bankruptcy Court there
dismissed the involuntary petition because, among other
things, DVI Funding and the DVI Receivables were not
Rosenberg’s creditors. In re Rosenberg, 414 B.R. 826, 840–
41 (Bankr. S.D. Fla. 2009), aff’d, 472 Fed. App’x 890 (11th
Cir. 2012) (per curiam). The petitions against NMI and NMI
Holding remained in the Eastern District of Pennsylvania,
where its Bankruptcy Court gave collateral estoppel effect to
the Florida decision and dismissed the petitions. In re Nat’l
Med. Imaging, LLC, 439 B.R. 837, 854 (Bankr. E.D. Pa.
2009), aff’d, __ Fed. App’x __, No. 15-1996, 2016 WL
1743475 (3d Cir. 2016).
Rosenberg then filed in the Southern District of
Florida Bankruptcy Court an adversary action under 11
U.S.C. § 303(i) against DVI Funding, the DVI Receivables
entities, Lyon, and U.S. Bank. He sought to recover costs,
attorney’s fees, and damages for the bad faith filing of the
involuntary bankruptcy petition. The Court awarded
Rosenberg fees and costs after a bench trial, In re Rosenberg,
No. 09-13196, 2012 WL 3990725 (Bankr. S.D. Fla. Sept. 11,
2012), aff’d in part, 779 F.3d 1254 (11th Cir. 2015), cert.
denied, 136 S. Ct. 805 (2016), and transferred the claim for
damages to the District Court for a jury trial. After trial, the
jury awarded Rosenberg $1.1 million in compensatory
damages and $5 million in punitive damages. The District
Court initially overturned the punitive damages award in its
entirety and limited compensatory damages to $360,000, but
the Eleventh Circuit held that U.S. Bank’s post-trial motion
was untimely and reinstated the jury’s verdict. Rosenberg v.
DVI Receivables, XIV, LLC, No. 12-22275, 2014 WL
4810348 (S.D. Fla. Sept. 29, 2014), rev’d in part, 818 F.3d
1283 (11th Cir. 2016).
5
With the stage set, we turn to the litigation currently on
appeal. In August 2013, Sara Rosenberg (Maury’s wife), the
Rosenberg Trust, and several NMI Real Estate Partnerships
(together with Mrs. Rosenberg and the Rosenberg Trust, the
“Rosenberg Affiliates”) brought suit to recover damages
stemming from the involuntary bankruptcy petitions filed
against Maury Rosenberg, NMI, and NMI Holding. All of
the plaintiffs are affiliated with Maury Rosenberg, but none
of them were parties to the involuntary bankruptcies.
The complaint stated a single claim of tortious
interference with contracts and business relationships. The
NMI Real Estate Partnerships owned the medical imaging
facilities subject to mortgages with various lenders. The
Rosenberg Affiliates alleged that the DVI Receivables
entities, DVI Funding, Lyon Financial, Jane Fox (an agent for
Lyon who signed the involuntary bankruptcy petitions), and
U.S. Bank (collectively, the “Defendants”), orchestrated the
filing of the involuntary bankruptcy petitions with the intent
to cause the NMI Real Estate Partnerships to default on their
underlying mortgages. As a result, the Partnerships were
declared in default, all but one of the properties have been
lost, and Sara Rosenberg lost her interest in one of the
Partnerships. The Rosenberg Affiliates also alleged that the
Rosenberg Trust suffered losses on investments in the
Partnerships and life insurance for Maury Rosenberg.
The case was initially filed in the District Court for the
Southern District of Florida, but it transferred the case to the
Eastern District of Pennsylvania on the motion of the
Defendants. They then moved to dismiss, arguing that the
Rosenberg Affiliates’ state law tortious interference claim
was preempted by the involuntary bankruptcy provisions of
the Bankruptcy Code. The District Court agreed and
dismissed the complaint. Rosenberg v. DVI Receivables, XIV,
6
LLC, No. 14-5608, 2015 WL 3513445 (E.D. Pa. June 4,
2015). This appeal followed.
II.
The District Court exercised diversity jurisdiction
under 28 U.S.C. § 1332(a), and we have appellate jurisdiction
to review its order dismissing the complaint under 28 U.S.C.
§ 1291. Our review of the District Court’s grant of a motion
to dismiss based on preemption is plenary. New Jersey
Carpenters v. Tishman Constr. Corp. of New Jersey, 760 F.3d
297, 302 (3d Cir. 2014). We accept all factual allegations in
the complaint as true and draw all reasonable inferences in
favor of the plaintiffs. Id.
III.
Section 303 of the Bankruptcy Code governs
involuntary bankruptcy cases. In an involuntary bankruptcy
case it is the creditors, not the debtors, who start the
proceedings by filing an involuntary petition under either
Chapter 7 or 11 of the Code. 11 U.S.C. § 303(b). Important
for our purposes is that § 303(i) provides that if an
involuntary bankruptcy petition is dismissed, the debtor may
recover attorney’s fees, costs, and even damages from the
creditors. It reads:
(i) If the court dismisses a petition under this
section other than on consent of all petitioners
and the debtor, and if the debtor does not waive
the right to judgment under this subsection, the
court may grant judgment—
(1) against the petitioners and in favor of
the debtor for—
7
(A) costs; or
(B) a reasonable attorney’s fee; or
(2) against any petitioner that filed the
petition in bad faith, for—
(A) any damages proximately
caused by such filing; or
(B) punitive damages
Id. § 303(i).
As they were not debtors, the Rosenberg Affiliates
cannot recover damages from the Defendants under § 303(i).
See, e.g., In re Miles, 430 F.3d 1083, 1093–94 (9th Cir.
2005); In re Mike Hammer Prods., Inc., 294 B.R. 752, 755
(B.A.P. 9th Cir. 2003); In re VII Holdings Co., 362 B.R. 663,
668 (Bankr. D. Del. 2007) (Shannon, J.); Collier on
Bankruptcy ¶ 303.33 (16th ed.). Shut off from a remedy
under the Bankruptcy Code, the Rosenberg Affiliates are
instead pursuing a state law tortious interference claim for
damages caused by the involuntary bankruptcy petitions filed
against Maury Rosenberg, NMI, and NMI Holding. The
question for us is whether § 303(i) preempts this state law
claim.
Federal preemption of state law is a “necessary but
precarious component of our system of federalism under
which the states and the federal government possess
concurrent sovereignty.” Sikkelee v. Precision Airmotive
Corp., 822 F.3d 680, 687 (3d Cir. 2016). Under this dual
system, federal and state law coexist peacefully much of the
time. But when those laws come into conflict, the Supremacy
Clause of the Constitution requires that state law give way to
federal law. U.S. Const. art. VI, cl. 2.
Federal preemption of state law comes in three forms:
express preemption, conflict preemption, and field
8
preemption. Elassaad v. Indep. Air, Inc., 613 F.3d 119, 126
(3d Cir. 2010). Ours is a case of alleged field preemption. It
“occurs when a field is ‘reserved for federal regulation,
leaving no room for state regulation,’ and ‘congressional
intent to supersede state laws [is] clear and manifest.’” Id.
(quoting Holk v. Snapple Beverage Corp., 575 F.3d 329, 336
(3d Cir. 2009)).
In deciding whether Congress has occupied a field for
exclusive federal regulation, we begin, based on concerns of
federalism, with a sturdy “presumption against preemption.”
Wyeth v. Levine, 555 U.S. 555, 565 (2009). “This ‘strong
presumption against inferring Congressional preemption’ also
applies ‘in the bankruptcy context.’” In re Fed.-Mogul Glob.
Inc., 684 F.3d 355, 365 (3d Cir. 2012) (quoting Integrated
Solutions, Inc. v. Serv. Support Specialties, Inc., 124 F.3d
487, 493 (3d Cir. 1997)). It is overcome when “a
Congressional purpose to preempt . . . is clear and manifest.”
Id. (quoting Farina v. Nokia Inc., 625 F.3d 97, 117 (3d Cir.
2010), cert. denied, 132 S. Ct. 365 (2011)). To discern the
preemptive intent of Congress, we look to the text, structure,
and purpose of the statute and the surrounding statutory
framework. Medtronic, Inc. v. Lohr, 518 U.S. 470, 486
(1996).
The inquiry we make is whether there is enough
evidence in the text, structure, or purpose of § 303(i) or the
Bankruptcy Code as a whole to rebut the presumption against
preemption and say that it was Congress’s “clear and manifest
intent” to preempt state law causes of action for non-debtors
based on the filing of an involuntary bankruptcy petition.1
We conclude that the evidence is insufficient for field
preemption.
1
We express no opinion on whether similar state law claims
brought by debtors would be subject to preemption.
9
Starting with text, § 303(i) provides a remedy to the
debtor, but is silent as to potential remedies for non-debtors
harmed by an involuntary bankruptcy petition. This suggests
that when Congress passed the provision it either did not
intend to disturb the existing framework of state law remedies
for non-debtors or (more likely) was not thinking about non-
debtor remedies at all. In either case, field preemption does
not apply. The Defendants ask us to infer that, by providing a
remedy to debtors, Congress also meant to deprive non-
debtors of any remedy.2 However, we do not lightly infer
from congressional silence the intent to deprive some persons
of a judicial remedy for an abuse of the bankruptcy system.
As the Supreme Court observed in a preemption case
concerning the Atomic Energy Act, “[i]t is difficult to believe
that Congress would, without comment, remove all means of
judicial recourse for those injured by illegal conduct.”
Silkwood v. Kerr-McGee Corp., 464 U.S. 238, 251 (1984).
Turning to structure and purpose, we see no indication
of field preemption. By giving creditors the ability to bring a
debtor into bankruptcy, Congress created a power that could
be abused. Given the risks of involuntary petitions, it
included a remedy for debtors to discourage abuse. In re
Diloreto, 388 B.R. 637, 655 (Bankr. E.D. Pa. 2008), aff’d,
442 B.R. 373 (E.D. Pa. 2010) (“Involuntary petitions, even
ones filed in good faith, can have a significant negative effect
2
The Defendants also suggested at oral argument that non-
debtors have some remedy under § 303, namely asking the
Bankruptcy Court to appoint a trustee to “take possession of
the property of the estate and to operate any business of the
debtor.” 11 U.S.C. § 303(g). But we do not see how the
post-petition appointment of a trustee would address the type
of economic losses the Rosenberg Affiliates alleged in their
complaint.
10
upon the interests of a putative debtor . . . . Section 303(i) was
intended to ameliorate those negative effects by imposing
liability upon the unsuccessful petitioning creditor . . . .”).
Nothing in the Code suggests that Congress was also
concerned about protecting non-debtors from the effects of
involuntary petitions.3 That said, it would be inconsistent
with the remedial purpose of § 303(i) to preempt state law
remedies for non-debtors that can likewise be harmed by
involuntary bankruptcy petitions. See In re John Richards
Homes Bldg. Co., L.L.C., 298 B.R. 591, 605 (Bankr. E.D.
Mich. 2003) (“[T]he harm from an improper involuntary
bankruptcy petition can result not only to the debtor but also
to the debtor’s owners, employees, suppliers, customers and
other creditors.”).
The Defendants point out that, in the automatic stay
provisions of the Code, Congress provided that any individual
“injured by any willful violation” of the automatic stay “shall
recover actual damages.” 11 U.S.C. § 362(k)(1). They argue
this suggests that Congress knew how to provide broad
remedies that covered non-debtors and declined to do so with
§ 303(i). No doubt this reading is plausible. But field
preemption requires congressional intent that is clear and
manifest, and this is lacking when Congress is silent on what
courts are to do with state law remedies for non-debtors.
3
If we were inclined to also look at legislative history for
clues as to Congress’s thoughts on this subject, we would still
come out empty-handed. Section 303(i) was enacted as part
of the Bankruptcy Reform Act of 1978, Pub. L. No. 95-598,
92 Stat. 2549, and the House and Senate Reports discussing
involuntary bankruptcies say nothing about non-debtors, non-
debtor remedies, or preemption.
11
The Defendants also argue that permitting state law
claims against creditors would be inconsistent with the
comprehensive nature of the Bankruptcy Code, the exclusive
nature of federal court jurisdiction over bankruptcies, and the
uniform nature of bankruptcy law. They stoke fears of a
flood of state court litigation challenging the actions of
creditors that would chill the use of involuntary bankruptcy
proceedings and permit state courts to rewrite bankruptcy
law. Yet there is no evidence in the text, structure, or purpose
of the Code that Congress was concerned with this outcome.
Moreover, the fears of the Defendants are based more on
conjecture than fact. They cite only a handful of state court
cases where non-debtors brought state tort claims against
petitioning creditors. E.g., PNH, Inc. v. Alfa Laval, Inc., 940
N.E.2d 577, 580 (Ohio Ct. App. 2010) (purchasers of
corporation’s debt brought tortious interference, abuse of
process, and defamation claims against creditors who filed
involuntary petition against corporation). In these
circumstances, we are not convinced by a floodgates
argument to support a finding of field preemption.
As for concerns that permitting state law claims will
undermine uniformity in bankruptcy law, we rejected a very
similar argument in U.S. Express Lines Ltd. v. Higgins, 281
F.3d 383 (3d Cir. 2002). That case addressed whether the
Federal Rules of Civil Procedure preempt state law tort
claims based on misconduct in federal litigation. We held
they did not but observed there were “legitimate public policy
concerns in concluding that the federal rules foreclose state
claims in the nature of abuse of process arising out of federal
litigation.” Id. at 394. Even though there would be conflicts
between the federal rules and state law and “federal
preemption would forestall such controversies,” we were
content to “rely on the traditional comity between the two
systems to deal adequately and innovatively with such
common problems.” Id. We rely on that same comity today
12
and trust that state courts faithfully will account for federal
bankruptcy law to the extent it may be relevant to a state law
claim against a creditor.
Finally, the Defendants urge us to follow the Ninth
Circuit’s decision of In re Miles, 430 F.3d at 1083, a decision
the District Court found persuasive when it dismissed the
Rosenberg Affiliates’ complaint. Non-debtors there were
allegedly harmed by an involuntary bankruptcy and brought
state law tort claims against the petitioning creditors in state
court. Id. at 1086–87. The creditors removed the case to
federal court and the Ninth Circuit held that the state law tort
claims were removable because they were “completely
preempted” by § 303(i). Id. at 1093 n.6.4 This was so
4
Complete preemption is not the same as field preemption,
and the two concepts should not be confused. Complete
preemption “operates to confer original federal subject matter
jurisdiction notwithstanding the absence of a federal cause of
action on the face of the complaint.” In re U.S. Healthcare,
Inc., 193 F.3d 151, 160 (3d Cir. 1999). It applies when the
preemptive force of a federal statute is so “extraordinary” that
it “converts an ordinary state common-law complaint into one
stating a federal claim for purposes of the well-pleaded
complaint rule.” Caterpillar Inc. v. Williams, 482 U.S. 386,
393 (1987) (quoting Metro Life Ins. Co. v. Taylor, 481 U.S.
58, 65 (1987)). Our case deals with field preemption, a
species of “ordinary preemption” that operates as a federal
defense to a state law claim, and has nothing to do with
subject matter jurisdiction. For this reason, Miles could be
deemed distinguishable. But we recognize that finding
complete preemption in the context § 303(i) would also
support finding field preemption in our case.
13
because “Congress intended 11 U.S.C. § 303(i) to provide the
exclusive basis for awarding damages predicated upon the
filing of an involuntary bankruptcy petition.” Id. at 1089.
Once convinced that the case was properly removed, the
Court dismissed the complaint because the non-debtors
lacked standing under § 303(i) to recover damages. Id. at
1093.
We do not find Miles persuasive on the preemption
issue.5 To start, its analysis of § 303(i) is inconsistent with
our decision in Paradise Hotel Corp. v. Bank of Nova Scotia,
842 F.2d 47, 52 (3d Cir. 1988), where we held that § 303(i) is
not an exclusive remedy for debtors who convert an
involuntary Chapter 7 bankruptcy petition to a voluntary
Chapter 11 reorganization. U.S. Express Lines Ltd., 281 F.3d
at 393 n.5 (noting that Miles is in tension with Paradise
Hotel). We also think the analysis is inconsistent with the
presumption against preemption, which, as we have
discussed, requires that congressional intent to preempt state
law must be clear and manifest. In re Fed.-Mogul Glob. Inc.,
We also note that if complete preemption were at issue in this
case, we doubt it would apply. The Supreme Court has found
complete preemption in three contexts: § 301 of the Labor
Management Relations Act, § 502(a) of ERISA, and §§ 85
and 86 of the National Bank Act. New Jersey Carpenters &
the Trustees Thereof, 760 F.3d at 302. It has never
recognized complete preemption in the Bankruptcy Code, and
it seems the Ninth Circuit stands alone in this regard. See In
re Repository Techs., Inc., 601 F.3d 710, 724 (7th Cir. 2010)
(declining to follow Miles).
5
As noted above, we do agree with the Miles Court that non-
debtors lack standing under § 303(i) to recover damages and
do not take issue with this portion of its opinion.
14
684 F.3d at 365. Near the beginning of its analysis, the Miles
Court admitted that the “Bankruptcy Code and its legislative
history are silent on whether Congress intended 11 U.S.C.
§ 303(i) to provide the exclusive basis for awarding damages
predicated upon the filing of an involuntary bankruptcy
petition.” 430 F.3d at 1089. If we apply faithfully the
presumption against preemption, silence on the part of
Congress should be the end of the analysis. But the Court
went on to “infer from Congress’s clear intent to provide
damage awards only to the debtor . . . that Congress did not
intend [non-debtors] to be able to circumvent this rule by
pursuing those very claims in state court.” Id. at 1091.
Absent evidence that Congress actually meant for § 303(i) to
be an exclusive remedy, we do not make the same inference.6
* * * * *
6
The Defendants argue in the alternative that we can affirm
on the basis of the statute of limitations, an issue the District
Court did not reach. “It is an accepted tenet of appellate
jurisdiction that we ‘may affirm a judgment on any ground
apparent from the record, even if the district court did not
reach it.’” Oss Nokalva, Inc. v. European Space Agency, 617
F.3d 756, 761 (3d Cir. 2010) (quoting Kabakjian v. United
States, 267 F.3d 208, 213 (3d Cir. 2001)). We decline to
affirm on that alternate ground in this case because it is
unclear from the record when the Rosenberg Affiliates were
injured and when their tortious interference claim accrued.
We do not know from the complaint, for example, when the
NMI Real Estate Partnerships defaulted on their mortgages or
when the Rosenberg Trust suffered its losses. Accordingly,
we will leave the statute-of-limitations issue to the District
Court on remand.
15
In this context, we hold that Bankruptcy Code § 303(i)
does not preempt state law claims by non-debtors for
damages based on the filing of an involuntary bankruptcy
petition. Accordingly, we reverse the decision of the District
Court and remand for further proceedings.
16