Mark Butterline v. City of Philadelphia ( 2020 )

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
________________
No. 18-2908
________________
MARK BUTTERLINE, Individually and as Administrator
of the Estate of Lisa Butterline, and on behalf of himself and
all others similarly situated,
Appellant
v.
THE BANK OF NEW YORK MELLON TRUST COMPANY,
NATIONAL ASSOCIATION, FKA The Bank of New York Trust
Company, N.A., as successor to JPMorgan Chase Bank,
N.A., as trustee for Residential Asset Mortgage Products, Inc.,
Mortgage Asset-Backed Pass-Through Certificates, Series
2005-RP1 I/P/A Bank of New York Trust, Co.; CITY OF PHILADELPHIA;
PHILADELPHIA SHERIFF'S OFFICE
________________
Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civil Action No. 2-15-cv-01429)
District Judge: Honorable Juan R. Sanchez
________________
Argued on July 7, 2020
Before: CHAGARES, SCIRICA and ROTH, Circuit Judges
(Opinion filed: December 28, 2020)
Daniel C. Levin
Levin, Sedran & Berman
510 Walnut Street
Suite 500
Philadelphia, PA 19106
William T. Wilson (ARGUED)
Bailey & Ehrenberg
120 North Church Street
Suite 206
West Chester, PA 19380
Counsel for Appellant
Craig R. Gottlieb
Jennifer MacNaughton (ARGUED)
City of Philadelphia Law Department
1515 Arch Street
Philadelphia, PA 19102
Counsel for Appellee
________________
OPINION*
________________
ROTH, Circuit Judge
Mark and Lisa Butterline1 sued the City of Philadelphia and the Philadelphia
Sheriff’s Office (collectively, the City) over the Sheriff’s Office’s failure to collect and
distribute excess proceeds from the sale of their foreclosed property. The District Court
*
This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not
constitute binding precedent.
1
Lisa Butterline died during the pendency of this appeal, and Mark Butterline was
substituted as the representative of her estate in the litigation.
2
denied the Butterlines leave to assert their procedural due process claim on the ground
that the claim was time-barred. For the reasons that follow, we will vacate the judgment
of the District Court and remand the case for further proceedings.
I.
In November 2007, the Bank of New York Mellon Trust Company filed a
foreclosure action against the Butterlines, who had fallen behind on their mortgage. The
foreclosure action resulted in a judgment of $62,764.79 against the Butterlines. Their
home was subsequently listed for a sheriff’s sale. The published notice of the sale stated
that in the event there was active bidding on the property, the highest bidder would post
certain costs at the time of the sale and pay the Sheriff’s Office the remaining balance
within 30 days of the sale. The notice also stated that the Sheriff’s Office would file a
schedule of distribution for the proceeds within 30 days of the sale, as required under
Pennsylvania law.2
On November 1, 2011, after a competitive bidding process, the Bank won the sale
with a bid of $93,000. The sum of the foreclosure judgment and the sheriff’s costs was
$79,055.90. The winning bid exceeded that amount by $13,944.10. Under Pennsylvania
law, the Butterlines had five years from the time of the sale to claim the excess funds. If
the funds were unclaimed, they would be retained by the Commonwealth of
2
231 Pa. Code Rule 3136(a).
3
Pennsylvania.3 However, the Sheriff’s Office never collected the entire bid amount or
filed a schedule of distribution. Instead, the Butterlines’ property was deeded to the Bank
on July 23, 2012, after the Bank had paid only the sheriff’s costs. The deed, however,
stated that the transfer of title was for the entire bid amount. The deed was recorded on
October 31, 2012.
After unsuccessfully attempting to have the sheriff’s sale set aside, the Butterlines
filed a claim with the Sheriff’s Office’s Defendant Asset Recovery Team (DART) to
claim the excess funds.4 In its December 18, 2014 letter, denying the Butterlines’ claim,
DART informed the Butterlines that, whenever an executing creditor in a foreclosure
wins the sale of the foreclosed property, the creditor has to pay only the sheriff’s costs.
Since the Sheriff’s Office never received any excess funds, the DART concluded, the
Butterlines were “not due any monies” from the sale, and their case was considered
closed.5
On March 19, 2015, the Butterlines filed a putative class action against the City
under 42 U.S.C. § 1983, claiming that the City had violated their right to procedural due
process by depriving them of their interest in the excess funds to which they were
entitled.6 The Butterlines later moved to amend their complaint. However, the District
3
72 Pa. Stat. §§ 1301.2, 1301.9; Act of July 10, 2014, P.L. 1053, No. 126, § 7 (changing
the period from five to three years); see also In re Sheriff’s Excess Proceeds Litig., 98
A.3d 706, 713 n.2 (Pa. Commw. Ct. 2014) (noting the five-year period for former
property owners to claim excess proceeds after the sale of properties formerly theirs).
4
The DART is now called the Home Asset Recovery Team.
5
R. 280.
6
The Butterlines also sued the Bank, but the claim against the Bank was dismissed with
prejudice and is not the subject of this appeal.
4
Court partially denied the motion, and, in particular, denied the Butterlines leave to renew
their procedural due process claim, which previously had been dismissed without
prejudice.7 The District Court initially observed that the Butterlines brought their suit in
March 2015 and that their procedural due process claim had a two-year statute of
limitations. Since the property interest at stake was the Butterlines’ “right to receive the
excess proceeds from the sheriff’s sale of their home,” the District Court determined that
their injury “would have occurred no later than when the City gave the Bank complete
title to the Property without (1) requiring it to pay that portion of the purchase price
representing the excess proceeds and (2) distributing those proceeds to [them].”8 Thus,
the District Court determined that the injury would have occurred no later than October
2012, when the deed was recorded, and the statute of limitations would have expired by
the time the Butterlines sued. In addition, the District Court held that the Butterlines
could not rely on the discovery rule to toll the statute of limitations because they could
not show that they had acted with reasonable diligence in discovering their injury.
Having concluded that the Butterlines’ procedural due process claim was untimely and
not subject to tolling, the District Court denied the Butterlines leave to amend on the
basis of futility. The Butterlines appealed.
7
This is in fact the Butterlines’ second attempt to amend, this time through a motion to
substitute their amended complaint. The Butterlines concede there is no material
difference between their procedural due process claim in their original complaint and in
their later complaints.
8
R. 438.
5
II.9
Although “[m]otions to amend under Rule 15 are typically granted liberally,” a
court may deny leave to amend when the amendment would be futile.10 An amendment
is futile if it could not withstand a motion to dismiss, such as on the basis of legal
insufficiency or the statute of limitations.11 We review a district court’s denial of leave to
amend for abuse of discretion and its determination that an amendment would be futile de
novo.12 We will find an abuse of discretion where we deem that a district court’s legal
conclusion regarding the futility of the amendment is erroneous.13 In other words, we
will reverse a denial of leave to amend on the basis of futility where the amendment
would not in fact be futile on the ground cited by the district court. We find that to be the
case here.
The statute of limitations for § 1983 claims is governed by a mix of federal and
state law: Whereas the law of the state where the cause of action arose provides the
9
The District Court had jurisdiction under 28 U.S.C. § 1331 and we have jurisdiction
under 28 U.S.C. § 1291.
10
Wolfington v. Reconstructive Orthopaedic Assocs. II PC, 935 F.3d 187, 210 (3d Cir.
2019).
11
City of Cambridge Ret. Sys. v. Altisource Asset Mgmt. Corp., 908 F.3d 872, 878 (3d
Cir. 2018); Garvin v. City of Philadelphia, 354 F.3d 215, 222 (3d Cir. 2003)
12
U.S. ex rel. Schumann v. Astrazeneca Pharm. L.P., 769 F.3d 837, 849 (3d Cir. 2014).
See also Spartan Concrete Prod., LLC v. Argos USVI, Corp., 929 F.3d 107, 112 (3d Cir.
2019).
13
Fallon v. Mercy Catholic Med. Ctr. of Se. Pennsylvania, 877 F.3d 487, 493–94 (3d Cir.
2017).
6
length of the limitations period and tolling principles,14 federal law determines when the
limitations period begins to run.15 Here, the statute of limitations under Pennsylvania law
is two years.16 Under federal law, the statute of limitations begins to run the moment the
claim accrues, namely, “when the plaintiff knew or should have known of the injury upon
which its action is based,” which is generally “the time of the last event necessary to
complete the tort.”17
The District Court determined that the Butterlines’ procedural due process claim
accrued and the statute of limitations began to run in October 2012. The court found that
was the point when the Butterlines “should have known both that excess proceeds existed
and that the City had not distributed any money from the sale to them.”18 That
determination is erroneous. A procedural due process violation “is not complete when
the deprivation occurs; it is not complete unless and until the State fails to provide due
process.”19 If there is a process that apparently provides adequate procedural remedies, a
plaintiff must avail himself of that process before bringing a procedural due process
claim.20 Because the City provided the DART process, the Butterlines were required
14
Kach v. Hose, 589 F.3d 626, 634, 639 (3d Cir. 2009) (stating that “[t]he length of the
statute of limitations for a § 1983 claim is governed by the personal injury tort law of the
state where the cause of action arose” and noting that federal tolling principles may apply
“[w]here state tolling principles contradict federal law or policy”).
15
Nguyen v. Pennsylvania, 906 F.3d 271, 273 (3d Cir. 2018).
16
42 Pa. Cons. Stat. Ann. § 5524; Montanez v. Sec’y Pa. Dep’t of Corrs., 773 F.3d 472,
480 (3d Cir. 2014).
17
Kach, 589 F.3d at 634 (internal quotation marks omitted).
18
R. 439.
19
Alvin v. Suzuki, 227 F.3d 107, 116 (3d Cir. 2000) (quoting Zinermon v. Burch, 494
U.S. 113, 126 (1990)).
20
See id.7
to—and did—avail themselves of that process. It was not until the Sheriff’s Office
notified them in December 2014 that it had failed to collect the entire bid amount that
their procedural due process claim became viable and that the statute of limitations began
to run.21 Their suit, filed about three months later, was thus timely.
Even assuming the statute of limitations had begun to run in October 2012, we
conclude that the discovery rule would have tolled its running until December 18, 2014.
Under Pennsylvania law, the discovery rule “tolls the running of the applicable statute of
limitations until the point where the complaining party knows or reasonably should know
that he has been injured and that his injury has been caused by another party’s conduct.”22
To invoke this rule, a plaintiff must exercise “reasonable diligence” in discovering his
injury, which means he must “establish that he exhibited those qualities of attention,
knowledge, intelligence and judgment which society requires of its members for the
protection of their own interests and the interests of others.”23 While “[t]here are very
few facts which diligence cannot discover, . . . there must be “some reason to awaken
inquiry and direct diligence in the channel in which it would be successful.”24
21
Cf. Montanez, 773 F.3d at 480 (procedural due process claim accrued within a month
of funds being deducted from prisoner’s account because prisoner should have known
from his monthly account statement that deduction had occurred).
22
Haugh v. Allstate Ins. Co., 322 F.3d 227, 231 (3d Cir. 2003) (internal quotation marks
omitted).
23
Kach, 589 F.3d at 642 (quoting Wilson v. El-Daief, 964 A.2d 354, 362, 363 n.6 (Pa.
2009)).
24
Fine v. Checcio, 870 A.2d 850, 858 (Pa. 2005) (alterations omitted) (quoting Crouse v.
Cyclops Indus., 745 A.2d 606, 611 (Pa. 2000)); see also Knopick v. Connelly, 639 F.3d
600, 612 (3d Cir. 2011) (“Where the plaintiff has no reason to investigate, the statute will
be tolled.”).
8
“[W]hether a plaintiff has exercised reasonable diligence is generally a factual question
reserved for the jury” unless “the facts are so clear that reasonable minds cannot differ as
to whether the plaintiffs exercised reasonable diligence.”25
The District Court’s ruling hinged on the fact that the Butterlines could have
submitted their request to the DART earlier. According to the District Court, this fact
“refutes any claim that they acted with reasonable diligence and precludes the application
of the discovery rule.”26 We disagree. The Butterlines were reasonably diligent, or at
least reasonable minds could disagree over whether they were. The City, consistent with
Pennsylvania law, announced in print that the entire winning bid amount for the sold
property would be collected and the City would distribute any excess to the Butterlines,
based on a schedule it would file. Although the Sheriff’s Office failed to file a schedule
of distribution or to distribute any excess funds to the Butterlines, the Butterlines initially
attempted to have the sale set aside, were denied in that attempt, and then timely pursued
their claim to the excess funds that the sale should have generated. They submitted a
request to the DART before the funds would be considered abandoned and unclaimed.
The District Court acknowledged that the Butterlines’ DART claim was timely but
stated that the timeliness of their DART claim “does not render their procedural due
25
Mest v. Cabot Corp., 449 F.3d 502, 512 (3d Cir. 2006) (internal quotation marks
omitted).
26
R. 440-41. To support this holding the District Court cited a non-precedential opinion
of this Court. That opinion is not binding on us, but in any event, the case is factually
distinguishable from this one in that it concerned a fact that the plaintiff must have
known about for more than two years before he filed his due process suit. See Fallin v.
Pennsylvania Dep’t of Transportation, 675 F. App’x 197, 198-99 (3d Cir. 2017).
9
process claim timely given [their] failure to exercise diligence in pursuing proceeds from
the sheriff’s sale.” 27 We believe that the timeliness of the Butterlines’ DART claim is a
significant factor in determining whether they exercised reasonable diligence. A person
reasonably could believe that the Sheriff’s Office would abide by Pennsylvania law or at
least by its own announcements, that the Sheriff’s Office may have simply been slow to
process the proceeds from the sale, and/or that he may pursue a claim during any point
within the period allowed under applicable law. To hold that reasonable diligence
indisputably required the Butterlines to have inquired earlier would alter the standard
beyond what is reasonable. More importantly, it finds no support in law since the
discovery rule applies when the plaintiff has no reason to believe he may have been
injured. That being the case here, irrespective of the accrual date, the discovery rule
would have tolled the statute of limitations on the Butterlines’ procedural due process
claim until December 2014 when their DART claim was denied. The Butterlines’ suit
thus was timely.
III.
For the foregoing reasons, we will vacate the District Court’s judgment,
dismissing their claims and remand this case for further proceedings consistent with this
opinion.
27
R. 441 n.10.
10