National Medical Imaging, LLC v. Ashland Funding LLC ( 2016 )

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
No. 15-1996
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In re: NATIONAL MEDICAL IMAGING, LLC,
Debtor
ASHLAND FUNDING LLC,
Appellant
_____________
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(E.D. Pa. Nos. 2-14-cv-03968 & 2-14-cv-03969)
District Judge: Honorable Cynthia M. Rufe
______________
Submitted Under Third Circuit L.A.R. 34.1(a)
January 28, 2016
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Before: VANASKIE, SHWARTZ, and RESTREPO, Circuit Judges
(Filed: May 3, 2016)
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OPINION*
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VANASKIE, Circuit Judge.
Appellant Ashland Funding LLC appeals the District Court’s judgment affirming
the Bankruptcy Court’s dismissal of Ashland’s involuntary bankruptcy petition against
*
This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7
does not constitute binding precedent.
Appellees National Medical Imaging (“NMI”) and National Medical Imaging Holdings
(“NMI Holdings”). The District Court concluded that the doctrine of collateral estoppel
precluded Ashland from re-litigating issues that the Bankruptcy Court for the Southern
District of Florida had previously resolved against Ashland when it dismissed an
involuntary petition filed against Maury Rosenberg, the managing member of NMI and
NMI Holdings. For the reasons discussed below, we agree that the petition here presents
identical issues to those addressed in the Southern District of Florida case, and that
Ashland was a participant in those proceedings. Accordingly, we will affirm the
judgment of the District Court.
I.
NMI and NMI Holdings are affiliated with limited partnerships (“NMI LPs”) that
operate diagnostic imaging centers. The NMI LPs entered into leases with DVI Financial
Services, Inc. in order to finance the purchase of their equipment. The leases were
secured by a limited guaranty of Maury Rosenberg and an additional guaranty by NMI
and NMI Holdings. DVI Financial transferred some of the leases to a related entity, DVI
Funding, LLC, and securitized and assigned the remaining leases to other various DVI
entities. DVI Funding subsequently entered into a Loan and Security agreement under
which it pledged the leases as collateral to investors, with U.S. Bank serving as trustee
and DVI Financial acting as servicer. After DVI Financial filed for bankruptcy, it
transferred its rights as servicer to Lyon Financial Services, an affiliate of U.S. Bank.
In December 2003, Lyon filed a confession of judgment action against Rosenberg,
NMI, and NMI Holdings alleging that the NMI LPs had defaulted on their leases. In
2
March 2005, several DVI entities, including DVI Funding, filed involuntary bankruptcy
petitions against NMI and NMI Holdings. This led to a comprehensive settlement
agreement entered into on August 12, 2005 by Rosenberg, NMI, NMI Holdings, and
Lyon—which was acting as servicer for DVI Funding and the other DVI entities under
their agreements with U.S. Bank and as agent for U.S. Bank. Pursuant to the settlement
agreement: (1) the involuntary bankruptcy petitions and confession of judgment actions
were dismissed; (2) Lyon restructured the repayment obligations of the NMI LPs and
released NMI and NMI Holdings from all claims except those arising from the settlement
agreement; (3) Rosenberg executed a new limited guaranty in favor of Lyon in the
approximate amount of $7.5 million (“Rosenberg Guaranty”); (4) NMI and NMI
Holdings executed a new unconditional guaranty for approximately $15 million (“NMI
Guaranty”); and (5) Rosenberg, NMI, and NMI Holdings executed confessions of
judgment in favor of Lyon. Effectively, the settlement agreement eliminated the
obligations previously owed to the DVI entities by the NMI LPs, which had been
guaranteed by NMI and Rosenberg, by consolidating them into a single obligation owed
in favor of a single creditor, Lyon, as the agent for U.S. Bank, with NMI and Rosenberg
serving as guarantors of the consolidated obligation.
On March 2, 2007, DVI Funding transferred its interests in the leases to Ashland.
The interests that Ashland acquired from DVI Funding were subject to the settlement
agreement.
In November 2008, DVI Funding—despite having no remaining interests in the
leases—and five other DVI entities filed involuntary bankruptcy petitions against NMI,
3
NMI Holdings, and Rosenberg in the Bankruptcy Court for the Eastern District of
Pennsylvania. Rosenberg filed a motion to dismiss the first amended involuntary petition
and to transfer venue to the Bankruptcy Court for the Southern District of Florida, where
Rosenberg resided. The proceedings against Rosenberg were subsequently transferred to
that district. The bankruptcy proceedings against NMI and NMI Holdings, however,
remained in the Eastern District of Pennsylvania.
A. Rosenberg Bankruptcy Proceedings in Florida
Rosenberg's motion to dismiss remained pending after the transfer of venue and
the Bankruptcy Court scheduled a hearing for April 20, 2009. Thereafter, without
seeking leave from the Bankruptcy Court, the creditors filed a second amended petition
that substituted Ashland as a petitioning creditor in place of DVI Funding. Rosenberg
then moved to strike the second amended petition on the ground that it had been filed
without leave of court.
After conducting the hearing on the motion to dismiss, which Ashland participated
in, the Bankruptcy Court granted Rosenberg’s motion to dismiss the first amended
petition and denied as moot Rosenberg’s motion to strike the second amended petition
that substituted Ashland as a petitioning creditor. See In re Rosenberg, 414 B.R. 826(Bankr. S.D. Fla. 2009) (Rosenberg I). Despite the fact that Ashland was not listed as a
petitioning creditor on the first amended petition, the Bankruptcy Court made three
holdings that are relevant here that explicitly addressed Ashland: (1) Ashland was not a
creditor of Rosenberg because it was not a beneficiary of the Rosenberg Guaranty, which
ran in favor of only Lyon as part of the consolidation of obligations effected by the 2005
4
settlement, id. at 840–41; (2) Ashland was not a real party in interest because it and the
other DVI petitioners “were nothing more than pass-through entities to facilitate the
securitization transactions,” id. at 842; and (3) Lyon was Rosenberg’s only creditor
because the settlement agreement constituted a novation that substituted a single
obligation to Lyon, as servicer and agent for U.S. Bank, in place of Rosenberg’s
previous obligations to the DVI entities, including DVI Funding, Ashland’s predecessor-
in-interest, id. at 844.1 In other words, neither Ashland nor the DVI entities had any right
to assert claims against Rosenberg based on his guaranty; that right belonged solely to
Lyon.
Ashland and the other petitioning creditors collectively moved for rehearing, and
when that proved unsuccessful, filed a notice of appeal to the District Court for the
Southern District of Florida. On September 27, 2011, the District Court affirmed the
Bankruptcy Court’s holdings that Ashland was not a creditor of Rosenberg, was not a real
party in interest, and the 2005 settlement agreement constituted a novation that replaced
Rosenberg’s previous obligation to the DVI entities with a single obligation to Lyon, as
servicer and agent to the trustee, U.S. Bank. See DVI Receivables, XIV, LLC v.
Rosenberg, No. 10-CIV-24347 (S.D. Fla. Sept. 27, 2011) (Rosenberg II). The District
Court concluded:
1
The Bankruptcy Court made one other finding that explicitly concerned
Ashland. It found that the claims of Ashland and the DVI entities were contingent and
subject to a bona fide dispute such that they did not have standing under 11 U.S.C. §
303(b) to file a petition for involuntary bankruptcy against Rosenberg. Id. at 844–47.
5
Ultimately, what this appeal comes down to is the fact that
the petitioning creditors are nothing more than pass-through
entities created for a limited purpose to complete a series of
complex securitization transactions. They have no pecuniary
interest, they do not receive any cash flow from the Master
Leases, and they assigned all rights they may have had to the
Trustee.
(App. 530.) The Eleventh Circuit issued a per curiam opinion affirming Rosenberg II in
full on July 6, 2012. See In re Rosenberg, 472 F. App’x 890 (11th Cir. 2012) (Rosenberg
III).2
B. NMI Bankruptcy Proceedings in the Eastern District of Pennsylvania
After Rosenberg I was issued, the Bankruptcy Court for the Eastern District of
Pennsylvania dismissed the petitions against NMI and NMI Holdings, concluding that the
real party in interest and novation holdings of Rosenberg I should be given collateral
estoppel effect. After Rosenberg II and III affirmed these holdings, the Bankruptcy Court
denied the motions for reconsideration filed on behalf of the DVI entities and Ashland.
The petitioning creditors, including Ashland, then filed notices of appeal to the District
Court for the Eastern District of Pennsylvania.
Concluding that the issues presented by the NMI guaranty were identical to the
issues adjudicated in Rosenberg I and II, the District Court affirmed the Bankruptcy
2
While the appeal to the Eleventh Circuit was pending, Rosenberg pursued a
sanctions claim against the petitioning creditors, including Ashland, in a separate
adversary proceeding pursuant to 11 U.S.C. § 303(i). On March 26, 2012, the Florida
Bankruptcy Court entered an order holding that § 303(i) was only applicable against
petitioning creditors who had their involuntary petitions dismissed by the Bankruptcy
Court. Accordingly, the Bankruptcy Court dismissed Ashland as a party to the adversary
proceeding because Ashland was not listed as a petitioning creditor on the petition the
Bankruptcy Court dismissed.
6
Court’s dismissal of the involuntary petitions against NMI and NMI Holdings under the
doctrine of collateral estoppel. Specifically, it concluded that, like the Rosenberg
guaranty, the “NMI guaranty creates an obligation only to Lyon.” (App. 28.) Thus, the
DVI entities and Ashland lacked standing to present involuntary bankruptcy petitions
against NMI and NMI Holdings. In holding that Ashland was bound by the Florida
judgment, the District Court rejected Ashland’s contention that it had not been a party to
the Florida proceedings. This timely appeal followed.3
II.
The Bankruptcy Court had jurisdiction under 28 U.S.C. § 1334. The District
Court had jurisdiction to review the final order of the Bankruptcy Court under 28 U.S.C.
§ 158(a). We have appellate jurisdiction over the District Court’s final order under 28
U.S.C. § 158(d) and § 1291. We exercise plenary review over the District Court’s
determinations “[b]ecause the District Court sat as an appellate court, reviewing an order
of the Bankruptcy Court.” In re Bocchino, 794 F.3d 376, 379 (3d Cir. 2015) (internal
quotation marks omitted). Therefore, we review legal determinations de novo and factual
determinations for clear error. Id. at 380.
A.
Collateral estoppel, or issue preclusion, “bars successive litigation of an issue of
fact or law actually litigated and resolved in a valid court determination essential to the
prior judgment, even if the issue recurs in the context of a different claim.” Taylor v.
3
Both the DVI entities and Ashland appealed. The DVI entities, however,
voluntarily dismissed their appeal, leaving Ashland as the only remaining Appellant.
7
Sturgell, 553 U.S. 880, 892 (2008) (internal quotation marks omitted). In order for
collateral estoppel to apply, the following four elements must be satisfied: “(1) the
identical issue was previously adjudicated; (2) the issue was actually litigated; (3) the
previous determination was necessary to the decision; and (4) the party being precluded
from relitigating the issue was fully represented in the prior action.” Howard Hess
Dental Labs. Inc. v. Dentsply Int’l, Inc., 602 F.3d 237, 247–48 (3d Cir. 2010) (quoting
Szehinskyj v. Att’y Gen., 432 F.3d 253, 255 (3d Cir. 2005)). Here, Ashland contends that
it was not fully represented in the Rosenberg bankruptcy proceedings because it was not a
party to those proceedings or in privity with a party. Additionally, Ashland asserts that
the issues are not identical because the Rosenberg bankruptcy proceedings centered on
the Rosenberg Guaranty, whereas these proceedings focus on the NMI Guaranty.
Therefore, Ashland argues that the District Court erred in giving collateral estoppel effect
to the real party in interest and novation holdings from Rosenberg I and II.
B.
In order to be considered a party for collateral estoppel purposes, “a person must
be subjected to the jurisdiction of the court by being served, appearing in court, or
participating in the litigation.” Kunkel’s Estate v. United States, 689 F.2d 408, 421 (3d
Cir. 1982). Collateral estoppel will also apply to a person who is not a formal party to the
litigation, if such person had “the opportunity to present proofs and argument” in the
previous litigation. Taylor, 553 U.S. at 895 (quoting Restatement (Second) of Judgments
§ 39, cmt. a (1980)). Additionally, collateral estoppel will apply to a nonparty to a prior
suit “when the nonparty is in privity with someone who was a party to the prior suit.”
8
Nationwide Mut. Fire Ins. Co. v. George V. Hamilton, Inc., 571 F.3d 299, 310 (3d Cir.
2009); see also Taylor, 553 U.S. at 894.
Ashland contends that it was not a party to the Rosenberg bankruptcy proceedings
because it was not listed as a petitioning creditor on the first amended involuntary
petition that Rosenberg I dismissed. The District Court disagreed and concluded that
Ashland was a party to both Rosenberg I and II.4 As the District Court explained:
During the Rosenberg bankruptcy proceedings, it is clear that
Ashland had the opportunity to be heard on the merits of its
claims and that all parties, including Ashland, proceeded on
the understanding that Ashland was a party to Rosenberg I.
Counsel appeared and argued on Ashland’s behalf and
Rosenberg’s counsel responded to Ashland’s claims. Upon
consideration of Ashland’s claims and Rosenberg’s
responses, Rosenberg I made detailed rulings on the merits of
Ashland’s claims. Ashland then had the opportunity to re-
litigate the merits of its claims by moving for re-hearing and
filing a notice of appeal. In sum, Ashland had its day in court
in the Florida Bankruptcy Court and is bound by Rosenberg I.
(App. 20.)
We concur with the District Court’s analysis. In the Rosenberg I proceedings,
Ashland retained counsel who appeared at the hearing on the motion to dismiss and made
arguments on Ashland’s behalf. The Bankruptcy Court subsequently reached holdings
regarding Ashland that were supported by detailed analyses. See Rosenberg I, 414 B.R.
4Ashland did not file a notice of appeal of Rosenberg II to the Eleventh Circuit.
Nonetheless, the finality of a lower court’s judgment for collateral estoppel purposes
cannot be defeated by electing to forgo an appeal. See United States v. Munsingwear,
Inc., 340 U.S. 36, 39 (1950) (“Concededly the judgment in the first suit would be binding
in the subsequent ones if an appeal, though available, had not been taken or perfected.”);
see also 18A Charles Alan Wright et al., Federal Practice & Procedure § 4433 (1981)
(“[P]reclusion cannot be defeated by electing to forgo an available opportunity to
appeal.”).
9
at 840–44. Following this ruling, Ashland moved for reconsideration and, following a
denial of that motion, filed a notice of appeal to the District Court for the Southern
District of Florida. The District Court in Rosenberg II, which affirmed the two holdings
at issue here, explicitly stated that Ashland was a party to the appeal. (App. 520.)
It is clear that in both Rosenberg I and II Ashland appeared in court, participated
in the litigation, and had the opportunity to present proofs and argument. See Taylor, 553
U.S. at 895; Kunkel’s Estate, 689 F.2d at 421. Because Ashland was a party fully
represented in the Rosenberg bankruptcy proceedings, we need not reach the question of
whether Ashland was in privity with a party to those proceedings.5
C.
Issues are identical for collateral estoppel purposes where “the issues presented by
[the current] litigation are in substance the same as those resolved” in the previous
litigation. Montana v. United States, 440 U.S. 147, 155 (1979). In other words, “identity
of issue is established by showing that the same general legal rules govern both cases and
that the facts of both cases are indistinguishable as measured by those rules.” Suppan v.
Dadonna, 203 F.3d 228, 233 (3d Cir. 2000) (quoting 18 Charles Alan Wright et al.,
Federal Practice & Procedure § 4425 (1981)). Accordingly, the facts of the two cases
do not need to be identical so long as any factual differences have no “legal significance”
5
We also reject, as did the District Court, Ashland’s contention that the Florida
Bankruptcy Court’s dismissal of Rosenberg’s § 303(i) sanction claim against Ashland
proves that Ashland was not a party to the Rosenberg bankruptcy proceedings. As
explained above, although Ashland may not have been listed as a petitioning creditor on
the first amended involuntary petition, Ashland appeared in court, participated in the
litigation, had the opportunity to present proofs and arguments, and was a party to
Rosenberg II. See Taylor, 553 U.S. at 895; Kunkel’s Estate, 689 F.2d at 421.
10
in “resolving the issues presented in both cases.” United States v. Stauffer Chem. Co.,
464 U.S. 165, 172 (1984).
Ashland argues that the identity of issues element is not satisfied here because the
real party in interest and novation holdings of Rosenberg I and II were based on the fact
that the Rosenberg Guaranty created an obligation to Lyon. Ashland maintains that this
bankruptcy proceeding is based, not on the Rosenberg Guaranty, but on the NMI
Guaranty. According to Ashland, the NMI Guaranty creates an obligation to Ashland,
making the difference between the two guaranties material and of “legal significance.”
The interpretation of the NMI Guaranty is governed by Pennsylvania law due to a
choice of law clause. Under Pennsylvania law, “as a general matter, interpretation of a
written agreement is a task to be performed by the court rather than a jury.” Am. Eagle
Outfitters v. Lyle & Scott Ltd., 584 F.3d 575, 587 (3d Cir. 2009) (citing Gonzalez v. U.S.
Steel Corp., 398 A.2d 1378, 1385 (Pa. 1979)). “[W]hen interpreting the language of a
contract, th[e] Court’s goal is to ascertain the intent of the parties and give it effect.”
TruServ Corp. v. Morgan’s Tool & Supply Co., 39 A.3d 253, 260 (Pa. 2012). To
determine the intent of the parties, “a writing must be interpreted as a whole, giving
effect to all its provisions.” Atl. Richfield Co. v. Razumic, 390 A.2d 736, 739 (Pa. 1978);
see also Lesko v. Frankford Hosp.-Bucks Cty., 15 A.3d 337, 342 (Pa. 2011).
Ashland’s argument is premised on a textual difference between Section 2 of the
Rosenberg and NMI Guaranties. In the Rosenberg Guaranty, Section 2 states that the
Guarantor “guarantees the full and prompt payment when due . . . the sums identified as
the ‘Guaranteed Amount’ for each Modified Lease on the attached Exhibit ‘A’ to
11
[Lyon].” (App. 191.) (emphasis added.) Conversely, the NMI Guaranty states that the
Guarantors “guarantee the full and prompt payment when due . . . the sums identified as
the ‘Guaranteed Amount’ for each Modified Lease on the attached Schedule ‘A’ due by
the respective Lessee in favor of the respective Lessor.” (App. 197.) (emphasis added.)
Ashland contends that this difference evidences an intent to create a different beneficiary
in the NMI Guaranty. Ashland maintains that as successor in interest to DVI Funding,
which is a named Lessor, it is an intended beneficiary under the NMI Guaranty.
We disagree. Instead, we conclude, as did the District Court, that the parties
intended the NMI Guaranty to create an obligation to Lyon that was identical in all
material respects to the Rosenberg Guaranty. Notably, the Rosenberg Guaranty is a
limited guaranty under which Rosenberg guaranteed a limited, specific amount. On the
other hand, the amount owed under the NMI Guaranty is measured in terms of the
remaining obligations the NMI LPs owed its lessors on the amortized leases. Section 2 in
each guaranty relates to payment of the “sums” due to Lyon and, therefore the textual
difference Ashland relies upon in Section 2 appears to be caused by the different methods
of calculating the amount owed under each guaranty. It does not, however, signify an
intent to create different beneficiaries of the NMI and Rosenberg Guaranties.
Moreover, when each guaranty is viewed in its entirety and in the context of the
2005 settlement agreement, it becomes clear that the parties intended both the Rosenberg
Guaranty and the NMI Guaranty to owe an obligation only to Lyon. First, the majority of
the wording in the NMI and Rosenberg Guaranties is identical, with only small
grammatical differences caused by the fact that the NMI Guaranty has two guarantors
12
while the Rosenberg Guaranty has one. Second, identical sections in both guaranties
grant Lyon the sole power to demand payment of the guaranty, establish that Lyon is the
party who will receive all payments under the guaranty, and grant Lyon the sole power to
release, waive, or compromise any obligation owed under each guaranty. Finally, each
guaranty contains an identical provision providing that the guarantors shall execute a
confession of judgment in “the amount owed the Agent,” i.e., Lyon. (App. 194, 200.)
Because both the Rosenberg Guaranty and the NMI Guaranty create an obligation
only to Lyon, the slight difference in verbiage upon which Ashland relies is immaterial
and of no “legal significance.” Accordingly, the issues in this proceeding are identical to
issues litigated in Rosenberg I and II, and the District Court correctly gave collateral
estoppel effect to the real party in interest and novation holdings from those proceedings.6
III.
For the forgoing reasons, we will affirm the District Court’s judgment of March
25, 2015.
6
Ashland also raised the argument that the novation holding should not be given
collateral estoppel effect because Rosenberg II did not reach this holding. We concur
with the District Court, however, that Ashland waived this argument by not raising it
before the Bankruptcy Court for the Eastern District of Pennsylvania. See In re Kaiser
Grp. Int’l Inc., 399 F.3d 558, 565 (3d Cir. 2005) (“[W]hen a party fails to raise an issue
in the bankruptcy court, the issue is waived and may not be considered by the district
court on appeal.”). In any event, Ashland’s argument is without merit because Rosenberg
II did affirm the novation holding of Rosenberg I. See App. 527. (“This Court believes
the Bankruptcy Court was thorough, fair, and correct as to all but one discrete issue[,
relating to the contingent nature of the claim.]”); App. 531 (“[T]his Court affirms the
decision on three grounds . . . .”) (emphasis added).
13