City of Philadelphia v. T. Phan and DMB Investments, LLC Appeal of: DMB Investments, LLC

IN THE COMMONWEALTH COURT OF PENNSYLVANIA
City of Philadelphia :
: No. 862 C.D. 2017
v. :
: Argued: March 6, 2018
Thuy Phan and :
DMB Investments, LLC :
:
Appeal of: DMB Investments, LLC :
BEFORE: HONORABLE PATRICIA A. McCULLOUGH, Judge
HONORABLE ELLEN CEISLER, Judge
HONORABLE JAMES GARDNER COLINS, Senior Judge
OPINION NOT REPORTED
MEMORANDUM OPINION
BY JUDGE McCULLOUGH FILED: April 2, 2018
DMB Investments, LLC (DMB) appeals from the May 30, 2017 order of
the Court of Common Pleas of Philadelphia County (trial court) allowing Thuy Phan
(Phan) to redeem property located at 5311 North 5th Street, Philadelphia, Pennsylvania
(the Property), upon payment of a redemption price of $46,637.50, denying DMB’s
request for reimbursement for repairs made to the Property in the amount of
$35,210.00, and forever barring DMB from asserting any right, title, lien, or interest in
the Property.
Facts and Procedural History
This matter returns to this Court following our previous order dated
October 24, 2016, which affirmed the trial court’s grant of Phan’s petition for
redemption and award to DMB of reimbursement of its bid amount of $46,000.00 plus
10% interest, but reversed the trial court’s order denying DMB reimbursement for other
necessary expenses paid by DMB to repair the Property. See City of Philadelphia v.
Thuy Phan, 148 A.3d 962 (Pa. Cmwlth. 2016). We remanded the matter to the trial
court with the direction to award DMB additional costs in the amount of $2,763.60 plus
interest,1 and to allow DMB to present evidence of the necessary and reasonable
amount of the aforementioned repairs.
The underlying facts of this case are set forth in our previous opinion and
we will briefly summarize them here. In a tax claim filed February 25, 2013, the City
of Philadelphia (City) requested a free and clear sale of the Property, seeking recovery
of delinquent real estate taxes in the amount of $7,650.33 for tax years 2010 and 2011.
On March 4, 2014, the trial court granted the City’s tax claim and ordered a sheriff’s
sale of the Property. At the May 21, 2014 sheriff’s sale, the Property was sold to DMB
for its bid amount of $46,000.00. The sheriff’s deed was acknowledged on June 10,
2014, and recorded on August 15, 2014.
On October 9, 2014, Phan filed a petition to set aside the tax sale and,
alternatively, requested the relief of redemption,2 averring that the Property was
continuously occupied for at least three months prior to the sale. By order dated
1
These costs included payments made by DMB in the amounts of $2,063.00 for 2015 real
estate taxes, $400.00 for a new stove, and a refuse collection fee of $300.00.
2
Section 32(a) of what is commonly known as the Municipal Claims and Tax Liens Act (Tax
Liens Act), Act of May 16, 1923, P.L. 207, as amended, 53 P.S. §7293(a), permits an owner to redeem
property sold under a tax or municipal claim upon payment of the bid amount and other costs
associated with the purchase of the property by a third party. This section will be discussed in further
detail below.
2
February 2, 2015, the trial court denied the petition to set aside and issued a rule to
show cause why redemption should not be granted.
DMB denied the averments of Phan’s petition and raised the following
relevant new matter: (1) the Property was rented as a barber shop on the first floor and
as a housing unit on the second floor; (2) the Property is zoned and utilized as a
commercial mixed use, and commercial properties could not be redeemed under the
Tax Liens Act; (3) Phan did not have the requisite rental licenses for the Property and
was precluded from the relief of redemption due to the equitable doctrine of unclean
hands; and (4) should Phan be permitted to redeem, DMB was entitled to
reimbursement in the amount of $92,348.26, which included the purchase price of
$46,000.00, repair and maintenance costs of $37,952.96, and $8,395.30 in interest.
The trial court conducted a hearing on March 17, 2015. The trial court
first held argument on whether the Property was subject to redemption. It was
undisputed that the Property was zoned for commercial mixed use and was comprised
of a single building, in which a commercial tenant occupied the first floor, and a
residential housing unit (apartment) was located on the second floor. Notably, the
parties stipulated the apartment was occupied by tenants during the requisite statutory
time period.3 Based upon this stipulation, the trial court granted Phan’s petition for
redemption, and proceeded to conduct a hearing limited to the amount of costs to be
reimbursed pursuant to section (a) of the redemption statute.
Following testimony from Phan and Dan Achen, who essentially owned
DMB and Caledonia Builders (CB), the latter company being contracted to perform the
3
Section 32(c) of the Tax Liens Act prohibits redemption of vacant property, which it defines
as property that was not “continuously occupied by the same individual or basic family unit as a
residence for at least ninety days prior to the date of the sale and continues to be so occupied on the
date of the acknowledgment of the sheriff’s deed therefor.” 53 P.S. §7293(c).
3
repairs at the Property, the trial court issued an order dated April 16, 2015, granting
Phan’s petition for redemption but limiting DMB’s reimbursement to the sum of
$49,833.00, which represented DMB’s bid amount of $46,000.00 plus 10% interest.
The trial court denied DMB’s request for reimbursement of additional repair costs in
the amount of $37,952.96, concluding that DMB failed to submit evidence of costs
actually paid. However, as noted above, by order dated October 24, 2016, this Court
reversed the trial court’s order to the extent that it denied DMB these additional costs
and remanded to allow DMB to present evidence of the necessary and reasonable
amount of the same. City of Philadelphia v. Thuy Phan.
Consistent with our remand, the trial court issued an order dated February
1, 2017, directing Phan to reimburse DMB costs in the amount of $2,763.60, plus
interest, and directed that an evidentiary hearing be held on April 4, 2017, to allow
DMB to present evidence of the necessary and reasonable amounts actually paid for
repairs to the Property. At this hearing, DMB sought reimbursement for the costs of
repairs in the amount of $35,210.00. In support of this request, DMB again presented
the testimony of Achen, during which several exhibits were shown and discussed that
purportedly identified the expenses paid for repairs at the Property. Achen first
confirmed a check was issued in the amount of $400.00 for replacement of a stove at
the Property. (Notes of Testimony (N.T.), April 4, 2017, at 9.) Achen next identified
an August 18, 2014 estimate submitted by CB for various repairs to the Property,
including, inter alia, a partial new roof, installation of a new sump pump in the
basement, and repair/replacement of doors and locks, as well as a corresponding check
issued to CB by DMB dated November 8, 2016, in the amount of $15,540.00. Id. at
10-12.
4
Achen also identified an October 20, 2014 estimate for significant repairs
to the apartment at the Property, as well as a corresponding check issued to CB by
DMB dated November 8, 2016, in the amount of $14,940.00. Id. at 13-14. Achen
further identified a September 15, 2014 invoice for replacement of a sewer pipe at the
Property, as well as a corresponding check issued to CB by DMB dated November 8,
2016, in the amount of $4,730.00. Id. at 14-15. Achen testified that all of the repairs
were necessary to maintain the structure and provide a safe environment for tenants.
Id. at 15. Achen also presented photographs which he alleged showed the condition of
the Property both before and after the repairs. Counsel for Phan thereafter objected to
DMB’s attempt to move these exhibits into the record, noting that at most they
represented letters/invoices from Achen to himself since he essentially owned both CB
and DMB and they were not purchase orders, receipts, or proof of payments to laborers.
Id. at 17-18. The trial court overruled the objection but noted that Phan could certainly
cross-examine Achen as to each of these exhibits.
On cross-examination, Achen admitted that the $400.00 check for the
stove was a check he wrote to reimburse himself for the purchase. Id. at 19. Achen
disagreed that he did not have any proof of payments being made for the repairs at the
Property, stating that the photographs established that the work was completed. Id. at
20. Achen acknowledged that both CB and DMB were his companies. Id. at 22. Achen
also acknowledged that while the estimates laid out a specific payment scheme, i.e.,
25% paid upfront, 50% paid at a specific stage of work completion, such as completion
of the roof, and the remaining 25% paid upon completion of the project, said scheme
was not followed in this case. Id. at 22-24. Upon questioning by the trial court, Achen
conceded that this payment scheme was not followed, that he just needed to put
5
something “on paper,” and that he would essentially pay himself when the money
became available. Id. at 24.
With respect to the replacement of the sewer pipe, Achen admitted that
the work was completed as of September 15, 2014, but the bill was not paid until later.
Id. at 26-27. In fact, Achen did not dispute that the checks for these letters/invoices
were all dated November 8, 2016. Id. at 29-30. However, Achen further stated that all
of the bills remained unpaid as of the date of the hearing as he was waiting for DMB
to accumulate sufficient funds to pay CB. Id. at 30. Finally, Achen acknowledged that
a tenant occupied the second floor apartment on the Property at the time DMB became
owner, for which he received a monthly rental payment of $600.00 until the tenant
vacated on his own a short time later. Id. at 35-36, 38. Achen stated that he also
collected a monthly rent of approximately $1,150.00 for a year of occupancy of the
first floor of the Property. Id. at 38-40.
On re-direct examination, Achen clarified that he received rent for one
year from a hair salon that operated on the first floor of the Property in the monthly
amount of $1,050.00. Id. at 45. Achen testified that the first floor was reoccupied for
a period of six months by another tenant, also a beauty salon, for which he received a
monthly rent of $1,000.00. Id. at 46.
Ultimately, by order dated May 30, 2017, the trial court declared the
Property to be redeemed by Phan and directed that a deed be prepared transferring the
Property from DMB to Phan upon her payment of the redemption price in the amount
of $46,637.50. The trial court calculated this redemption price by including the bid
amount of $46,000.00, plus 10% interest over a period of 34 months, for a total of
$59,022.00, and actually-paid reasonable and necessary expenses proven by the
evidence of $6,365.50 (representing DMB’s payments for the stove, real estate taxes,
6
and refuse collection fees, plus interest), for a total of $65,387.50. From this amount,
the trial court deducted $15,750.00 (representing rental payments of 15 months at
$1,050.00 per month and for an indicated time period of June 2014 through September
2015), and an additional $3,000.00 (representing rental payments of $600.00 per month
for 5 months), totaling $18,750.00. After deducting these rental payments from the
established redemption price of $65,387.50, the trial court arrived at the final
redemption price of $46,637.50.
DMB thereafter filed a notice of appeal with the trial court. By order dated
June 22, 2017, the trial court directed DMB to file a concise statement of errors
complained of on appeal in accordance with Pa.R.A.P. 1925(b). DMB complied and
filed its concise statement on July 10, 2017, alleging that the trial court erred and/or
abused its discretion in failing to find that it was entitled to reimbursement of
$35,210.00 in maintenance/repair costs that it actually paid during its possession of the
Property and in failing to find that such costs were reasonable and necessary.
The trial court subsequently issued an opinion in support of its order in
accordance with Pa.R.A.P. 1925(a). In this opinion, the trial court first noted that, in
the case of redemption, section 32(a) of the Tax Liens Act only requires reimbursement
of “other charges and necessary expenses of the property, actually paid.” 53 P.S.
§7293(a). Citing our Superior Court’s decision in City of Philadelphia v. Watkins, 494
A.2d 1135 (Pa. Super. 1985), the trial court noted that there is a distinction between
necessary expenses, which are reimbursable as part of a property owner’s right of
redemption, and improvements, which are not. In the latter case, a purchaser that buys
a property with knowledge of the right of redemption takes “the risk of not being able
to demand of the redemptor such expenditures as were not necessary to keep [the
7
property] in the condition in which it was bought.” Id. at 1138 (citing Philadelphia v.
Rutherford, 62 A.2d 122, 122-23 (Pa. Super. 1948)).
The trial court explained that, in this case, DMB “provided no evidence
that the costs of repair were actually paid.” (Trial court op. at 7.) The trial court stated
that the only evidence provided by DMB evidencing expenses actually paid were
checks from DMB to CB for $15,540.00, $14,940.00, and $4,730.00, respectively.
However, the trial court noted Achen’s testimony that both DMB and CB were his
companies, thereby making Achen both the contractor and the client; that the checks
were issued on November 8, 2016, two years after the work was completed and only
two weeks after the parties received our prior decision remanding this matter; and that
Achen admitted that DMB had not yet paid CB. Additionally, the trial court noted that
DMB had not provided any receipts or documentation relating to the repairs made at
the Property. Further, the trial court specifically rejected Achen’s testimony as not
credible.
Discussion
On appeal to this Court,4 DMB reiterates its argument that the trial court
abused its discretion in failing to find that it was entitled to reimbursement of
$35,210.00 in reasonable and necessary repair costs that it actually paid during its
possession of the Property. We disagree.
Section 32(a) of the Tax Liens Act provides, in pertinent part, as follows:
4
In tax sale cases, our scope of review is limited to determining whether the trial court “abused
its discretion, rendered a decision which lacked supporting evidence or clearly erred as a matter of
law.” City of Allentown v. Kauth, 874 A.2d 164, 165 n.4 (Pa. Cmwlth. 2005), appeal denied, 912
A.2d 839 (Pa. 2006). “An abuse of discretion occurs when the course pursued represented not merely
an error of judgment, but where the judgment is manifestly unreasonable or where the law is not
applied or where the record shows that the action is a result of partiality, prejudice, bias or ill will.”
Ligonier Township v. Nied, 161 A.3d 1039, 1045 n.4 (Pa. Cmwlth. 2017) (citations omitted).
8
The owner of any property sold under a tax or municipal
claim, or his assignees, or any party whose lien or estate has
been discharged thereby, may, except as provided in
subsection (c) of this section, redeem the same at any time
within nine months from the date of the acknowledgment of
the sheriff’s deed therefor, upon payment of the amount bid
at such sale; the cost of drawing, acknowledging, and
recording the sheriff’s deed; the amount of all taxes and
municipal claims, whether [sic] not entered as liens, if
actually paid; the principal and interest of estates and
encumbrances, not discharged by the sale and actually paid;
the insurance upon the property, and other charges and
necessary expenses of the property, actually paid, less
rents or other income therefrom, and a sum equal to interest
at the rate of ten per centum per annum thereon, from the
time of each of such payments.
53 P.S. §7293(a) (emphasis added). We have previously noted that this redemption
statute “is to be liberally construed so as to effect its object and to promote justice.”
City of Philadelphia v. F.A. Realty Investors Corp., 95 A.3d 377, 384 (Pa. Cmwlth.
2014) (citation omitted).
As did the trial court, DMB also cites to City of Philadelphia v. Watkins
for support. DMB relies on that case for the proposition that reasonable expenses
incurred to make a property habitable are reimbursable under section 32(a) of the Tax
Liens Act. However, City of Philadelphia v. Watkins is distinguishable from the
present case. In that case, the third-party purchasers had intended to reside at the
property and submitted a contract for the work performed on the property and copies
of their receipts for payment of the work before the common pleas court. Additionally,
the common pleas court accepted the testimony of these third-party purchasers as
credible and persuasive.
Herein, DMB purchased the Property as an investment property, and not
as a residence. Indeed, the Property was a mixed use, with a commercial/rental space
9
on the first floor and a residential/apartment space on the second floor. During the trial
court’s April 4, 2017 hearing, DMB submitted the same 2014 letters/invoices that it
had submitted during the prior proceedings before the trial court, payment of which
was ultimately denied and led to this Court’s remand for the presentation of further
evidence.5 While DMB did present copies of checks consistent with said
letters/invoices issued to CB in the recent proceeding, these checks were all dated
November 8, 2016, more than two years after the work was completed and only two
weeks after the issuance of our remand decision. Additionally, DMB did not present
any receipts for construction materials, nor did it present any payroll documentation,
related to the work done at the Property. This was especially important because Achen
owned both DMB and CB and he was essentially paying himself for the work
completed at the Property. While DMB asserts that it should not matter that the
transactions in this case occurred between two closely held corporations, this is
precisely why the nature of the evidence was critical in this case. Indeed, we stressed
the unique nature of Achen’s ownership/involvement with both DMB and CB in our
prior opinion and remanded to essentially give DMB a second opportunity to present
more detailed evidence related to the expenses it incurred at the Property.
Unfortunately, DMB failed to present such evidence before the trial court on remand.
Moreover, the trial court specifically rejected Achen’s testimony regarding the
reasonableness and necessity of the repairs made to the Property as not credible.
Further, Achen testified before the trial court that the 2014 letters/invoices
were “still not paid.” (N.T., April 4, 2017, at 30.) DMB alleges that the trial court took
5
Of the three letter/invoices submitted by DMB, only one specifically itemized the repairs to
be performed at the Property and the costs associated with each repair. See Reproduced Record (R.R.)
at 49a-50a. The other two letters/invoices simply described the repairs to be done and included a total
price. See R.R. at 51a-52a, 55a. Nevertheless, these letters/invoices do not establish the necessity of
the repairs or that the cost of the same was actually incurred by CB and paid by DMB.
10
Achen’s testimony out of context, and its reliance on Achen’s “admission” rendered its
ultimate decision an abuse of discretion. The following passage reflects the exchange
between Achen and counsel for Phan at the April 4, 2017 hearing upon which the trial
court based its finding that the letters/invoices were not paid:
Q So all three of these checks or all of the invoices that you
submitted were not paid at all until November 8, 2016 which
is, well, about two years after the work was done, isn't that
correct?
A That's correct, but they’re still not paid.
Q But here’s the thing, why all of a sudden having not being
paid all this time what’s unique about November 8, 2016?
A Because the company did not have any money to pay those
invoices so we’re waiting until DMB has money to pay
Caledonia Builders. So I don’t think that should be a crime.
Id. (Emphasis added.) We fail to see how the trial court took this testimony out of
context or how its reliance on this testimony constituted an abuse of discretion.
Conclusion
Because DMB did not present sufficient evidence establishing that
necessary expenses were incurred for repairs at the Property, and that payment for such
repairs was actually made, the trial court did not abuse its discretion in denying DMB
reimbursement for the same.
Accordingly, the trial court’s order is affirmed.
________________________________
PATRICIA A. McCULLOUGH, Judge
11
IN THE COMMONWEALTH COURT OF PENNSYLVANIA
City of Philadelphia :
: No. 862 C.D. 2017
v. :
:
Thuy Phan and :
DMB Investments, LLC :
:
Appeal of: DMB Investments, LLC :
ORDER
AND NOW, this 2nd day of April, 2018, the order of the Court of
Common Pleas of Philadelphia County, dated May 30, 2017, is hereby affirmed.
________________________________
PATRICIA A. McCULLOUGH, Judge