Schluth, W. v. Krishavtar, Inc.

J-A11019-22
2023 PA Super 143WILLIAM SCHLUTH : IN THE SUPERIOR COURT OF
: PENNSYLVANIA
:
v. :
:
:
KRISHAVTAR, INC. AND :
BARKRUSHNA PANCHAL :
: No. 2088 EDA 2021
Appellants :
Appeal from the Order Entered September 7, 2021
In the Court of Common Pleas of Philadelphia County
Civil Division at No: 170602871
WILLIAM SCHLUTH : IN THE SUPERIOR COURT OF
: PENNSYLVANIA
:
v. :
:
:
KRISHAVTAR, INC :
:
Appellant : No. 2089 EDA 2021
:
Appeal from the Order Entered September 7, 2021
In the Court of Common Pleas of Philadelphia County
Civil Division at No: 170603382
BEFORE: BOWES, J., STABILE, J., and McLAUGHLIN, J.
OPINION BY STABILE, J.: FILED JULY 31, 2023
Appellants, Krishavtar, Inc. and Barkrushna Panchal, appeal for the third
time in these consolidated cases from the September 7, 2021 order entered
in the Court of Common Pleas of Philadelphia County, denying their petitions
to mark judgments satisfied as to Krishavtar and Panchal. Following review,
J-A11019-22
we conclude the trial court was without jurisdiction to enter the order and
therefore we vacate the order.
Our review of the record informs us of the following summary of the
factual and procedural background of this case. In 2008, Krishavtar, through
its president Panchal, entered into an agreement of sale with Appellee, William
Schluth, for the purchase of a Philadelphia property upon which Schluth
operated a gas station for several years. It was Panchal’s intent to purchase
the property and to operate the gas station as part of his retirement. The
purchase price was $695,000, which included an up-front payment of
$136,000 and an agreement, subsequently modified, to account for
contamination and necessary remediation, to pay the balance in installments.
The terms of the payments were set forth in a Note executed by Panchal on
behalf of Krishavtar. The Note was secured by a Mortgage on the property
between Krishavtar as Borrower and Schluth as Lender. Panchal also executed
a personal Guaranty of Mortgage.
Eventually, Krishavtar defaulted on the Mortgage and Panchal breached
the terms of the Guaranty by failing to make payments upon Krishavtar’s
default. Consequently, Schluth filed two actions, one against Krishavtar for
mortgage foreclosure (“Mortgage Foreclosure Case”—an in rem action
docketed at No. 3382-June Term 2017), and one against both Appellants for
breach of contract (“Breach of Contract Case”—an in personam action
docketed at No. 2871-June Term 2017). On March 13, 2019, following a non-
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jury trial, the trial court entered an order in favor of Schluth in the amount of
$555,942.96 in the Mortgage Foreclosure Case and directed that the
prothonotary may issue a writ of execution for the sheriff to proceed to sale
of the real property. In that same order, the court entered an in personam
judgment in the amount of $555,942.96 in favor of Schluth and against
Panchal in the Breach of Contract Case, representing Panchal’s personal
liability.1 On April 2, 2019, Schluth filed a Writ of Execution in the amount of
$555,942.96 in the Mortgage Foreclosure Case. On June 6, 2019, judgments
in that amount were entered against Appellants in both cases.
After the denial of post-trial motions, Appellants filed their First Appeal
in both cases to this Court on June 6, 2019, that we subsequently consolidated
(“First Appeal”). In their First Appeal, Appellants maintained that the court
erred by failing to excuse performance based upon Schluth’s material breach,
that the court erred by failing to allow for rescission of the contract, and that
the court erred in calculating damages because it failed to consider the parties’
modification of the payment terms.
In connection with the First Appeal, Appellants also filed an emergency
petition on June 24, 2019, under both docket numbers seeking a stay of the
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1 The Guaranty of Mortgage dated April 9, 2009 (attached to Schluth’s
Amended Complaint as Exhibit E in the Breach of Contract Case) authorized,
inter alia, Schluth to join Panchal in any action against Krishavtar as
Mortgagor, or to recover against Panchal in any independent action in the
event a default occurred under the Mortgage.
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sheriff’s sale of the property. By order entered on July 3, 2019, the trial court
denied the petition.2 Appellants then filed a motion for reconsideration of the
stay denial on July 22, 2019. While the motion for reconsideration was
pending, the property sold at sheriff’s sale on August 6, 2019, to JSW
Holdings, LLC (“JSW Holdings”), a limited liability company owned by Schluth
for $420,000, as reflected on the Mortgage Foreclosure Case docket.3 Two
days later, on August 8, 2019, the trial court granted Appellant’s
reconsideration motion and ordered all execution proceedings stayed. The
order, however, was entered only under the docket for the Breach of Contract
Case.4
On June 30, 2020, this Court in the First Appeal affirmed in part and
reversed in part the trial court’s March 13, 2019 orders. We vacated the trial
court’s damages award and remanded the case with direction to the trial court
to (1) determine whether the payment terms of the agreement of sale had
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2 We note with frustration that while the Mortgage Foreclosure Case and
Breach of Contract Case were not consolidated in the trial court, the dockets
reflect that several documents—including the emergency petition and the trial
court’s denial of the petition, were filed with both captions on a single
document filed only in the Breach of Contract Case.
3In anticipation of the sale, on the previous day, Schluth assigned the
Mortgage on the property to JSW Holdings.
4 We note that the sheriff’s sale is reflected only on the docket of the Mortgage
Foreclosure Case while the order staying execution appears only on the docket
of the Breach of Contract Case and bears the caption of that case only. See
Order, 8/12/19, at 1; Reproduced Record at 161a.
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been modified by the conduct of the parties and (2) enter an amount of
damages consistent with those findings. See Schluth v. Krishavtar, Inc.
and Panchal, Nos. 2013 and 2014 EDA 2019, unpublished memorandum (Pa.
Super. filed June 30, 2020), appeal denied, 242 A.3d 1249 (Pa. 2020).
Pursuant to our remand order, on March 8, 2021, the trial court issued
findings of fact and conclusions of law. While the court found that there was
an offer to modify the payment amounts, it found there was no agreement
between the parties to modify the Note and/or Mortgage. The court calculated
that Schluth was entitled to damages in the amount of $612,878.93 on his
claims for breach of the Note. Findings of Fact and Conclusions of Law, 3/8/21
at 4, ¶3. The court also found that the property was sold at sheriff sale on
August 6, 2019 for $420,000 to an entity owned by Schluth and, thereafter,
resold on September 25, 2020 for $600,000.5 Id. at 4 ¶4. The court then
recalculated damages in favor of Schluth by subtracting from its award of
$612,878.93 the net sum of $509,090.92, representing the net proceeds from
the sale as determined by deducting costs incurred for the sheriff’s sale and
closing costs, and then adding interest. After making these adjustments, the
court determined that the amount then owing by the defendants to Schluth
was $92,616.09. Id. On April 3, 2021, judgment was entered on both dockets
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5 While the amount of $600,000 is not expressly referenced in the court's
findings, it is found elsewhere in the record and, in any event, the court's net
calculation of damages was dependent upon using this number.
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in the amount of $92,616.09. Appellants then filed their second appeal
(“Second Appeal”) on April 6, 2021. In their Second Appeal, Appellants
challenged the trial court’s findings that there was no contract modification
based upon the parties’ conduct, and that it erred in calculating damages when
they claimed they presented sufficient proof they did not owe any money due
to Schluth’s putative breach of contract. On March 9, 2022, we affirmed the
trial court’s March 8, 2021 orders that were entered as judgments on April 3,
2021. See Schluth v. Krishavtar, Inc. and Panchal, Nos. 745 and 746
EDA 2021, unpublished memorandum (Pa. Super. filed March 9, 2022).6
Meanwhile, on August 9, 2021, after we vacated Schluth’s damage
award under the First Appeal, and while the March 8, 2021, orders in the
Second Appeal were still pending before this Court, Appellants filed identical
petitions in the trial court to mark the June 6, 2019 judgments satisfied in
both the Mortgage Foreclosure and Breach of Contract Cases. Petitions to
Mark Judgment Satisfied, 8/9/21, at ¶¶ 3, 9. In each petition, Appellants
represented that on August 5, 2019, the mortgage on the property was
assigned by Schluth to JSW Holdings. Id. at ¶ 4. Each petition further
reflected the August 6, 2019 sheriff’s sale to JSW Holdings for $420,000, and
JSW Holdings’ subsequent sale of the property for $600,000 to Posh Real
____________________________________________
6 On May 19, 2022, we denied Appellants’ application for
reconsideration/argument en banc. On September 27, 2022, our Supreme
Court denied the petitions for allowance of appeal.
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Estate Management, LLC, on September 25, 2020. Id. at ¶¶ 5, 7. Appellants
represented that Schluth failed to file a petition to fix the fair value of the
property within six months of the sale to judgment creditor JSW Holdings as
required by 42 Pa.C.S.A. § 8103(d) and, therefore, Appellants were entitled
to have the judgments marked satisfied.7
By order entered September 7, 2021, the subject of this Third Appeal,
the trial court denied Appellants’ petitions to mark the judgments satisfied,
explaining that a deficiency judgment in the amount of $92,616.09 was
properly entered on April 3, 2021 against Krishavtar, Inc. as borrower and
against Panchal as guarantor. Therefore, Appellants’ petitions lacked merit.
Order, 9/7/21, at 1 n.1. This timely Third Appeal followed. The trial court did
not order the filing of a statement of errors pursuant to Pa.R.A.P. 1925(b),
but did file an opinion on October 27, 2021, indicating that the reasons for
denying Appellants’ petitions were set forth in the September 7, 2021 order.8
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7 For ease of discussion and to minimize confusion, we shall henceforth refer
to JSW Holdings by the name of its owner, Schluth.
8 In a footnote to the September 7, 2021 order, the trial court explained its
denial of the petitions, stating:
Following a remand and further briefing by the parties, this court,
on March 8, 2021, issued findings of fact and conclusions of law
which set a deficiency judgment of $92,616.09. The deficiency
judgment was entered on April 3, 2021 and both [Appellants] filed
timely notices of appeal. The deficiency judgment was properly
entered against the borrower (Krishavtar, Inc.) and the guarantor
(Panchal). Therefore, [Appellants’ petitions] are without merit.
(Footnote Continued Next Page)
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Appellants ask us to consider one issue on appeal, which we repeat here
verbatim:
Whether the trial court erred in denying Appellants, Krishavtar,
Inc. and Barkrushna Panchal’s Petition to Mark the Judgment
Satisfied where appellee purchased the Appellants’ real estate at
a sheriff’s sale and then failed to proceed within six months of the
sale to petition the court to fix the fair market value of the real
estate pursuant to 42 Pa.C.S.A. § 8013 and the judgment against
Appellants’ deemed to be fully satisfied as a matter of law, thus
entitling Appellants’ to have the judgment marked satisfied of
record, especially that the judgment was already been vacated by
the Superior Court on Appeal?
Appellants’ Brief at 4.
When reviewing deficiency judgment proceedings, an appellate court is
limited to determining whether there is sufficient evidence to sustain the
holding of the trial court, or whether the court committed reversible error of
law. Bryn Mawr Trust Co. v. Healy, 667 A. 2d 719 (Pa. Super. 1995), citing
cases.
Relevant to our discussion are the following provisions of the Deficiency
Judgment Act (“DJA”):
(a) General rule.--Whenever any real property is sold, directly
or indirectly, to the judgment creditor in execution proceedings
and the price for which such property has been sold is not
sufficient to satisfy the amount of the judgment, interest and
costs and the judgment creditor seeks to collect the balance
due on said judgment, interest and costs, the judgment
creditor shall petition the court to fix the fair market value
of the real property sold. The petition shall be filed as a
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Order, 9/7/21, at 1 n.1.
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supplementary proceeding in the matter in which the judgment
was entered.
...
(d) Action in absence of petition.--If the judgment creditor
shall fail to present a petition to fix the fair market value of
the real property sold within the time after the sale of such
real property provided by section 5522 (relating to six
months limitation), the debtor, obligor, guarantor or any other
person liable directly or indirectly to the judgment creditor for the
payment of the debt . . . may file a petition, as a supplementary
proceeding in the matter in which the judgment was entered, in
the court having jurisdiction, setting forth the fact of the sale, and
that no petition has been filed within the time limited by section
5522 to fix the fair market value of the property sold, whereupon
the court, after notice as prescribed by general rule, and being
satisfied of such facts, shall direct the clerk to mark the
judgment satisfied, released and discharged.
42 Pa.C.S.A. § 8103 (a), (d). (Emphasis added).
As indicated, the DJA directs that if the price for which a property has
been sold is not sufficient to satisfy the judgment, a petition to fix the fair
market value of the property must be filed within six months of the property
sale in order to determine the balance due a judgment creditor, or in other
words, a “deficiency judgment.” The petition is to be filed “in the matter in
which the judgment was entered.” 42 Pa.C.S.A. § 8103(d). In Home Sav.
and Loan Co. of Youngstown, Ohio v. Irongate Ventures, LLC, 19 A.3d
1074 (Pa. Super. 2011), this Court determined that the plain language of the
DJA “requires petitions to fix fair market value to be filed in the dockets of the
Foreclosure Actions.” Id. at 1079. Here, Appellants filed petitions in both the
Mortgage Foreclosure and the Breach of Contract Cases to have the judgments
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marked as satisfied due to Schluth’s failure to petition the court to fix the fair
market value of the real estate within six months of the sheriff’s sale, as
required under the DJA.9
As this Court recognized in Irongate Ventures,
“The objective of the [DJA] is to relieve a debtor from further
personal liability to the judgment creditor when the real property
taken by the judgment creditor on an execution has a fair market
value on the date of sale sufficient so that the judgment creditor
can dispose of the property to others without a further loss.”
Horbal v. Moxham Nat. Bank, 697 A.2d 577, 582 (Pa. 1997).
If the judgment creditor fails to file a § 8103(a) petition to fix the
fair market value of the property within six months of the sheriff’s
sale, then the debtor may file a petition to have the judgment
marked satisfied, released and discharged as a matter of
law. 42 Pa.C.S.A. § 8103(d); First Nat. Consumer Discount
Co. v. Fetherman, 527 A.2d 100, 105 (Pa. 1987).
Id., 19 A.3d at 1078 (cleaned up). Further,
[u]nder the Pennsylvania [DJA] a mortgagee who purchases
the mortgaged property in execution proceedings cannot
recover a deficiency judgment unless and until the
mortgagee obtains a court determination of the fair market
value of the mortgaged property and credits that amount
to the unsatisfied liability. When, as eventuated in this case,
the mortgagee fails to bring a proceeding for this purpose within
six months after the foreclosure sale, the debtor and guarantor
are permanently discharged.
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9 Under Irongate Ventures, the petition filed in the Breach of Contract action
was improper under the DJA. If filed and granted in the foreclosure action,
the order would release any other debtor, obligor, guarantor, or any other
person liable directly or indirectly to the judgment creditor for payment of the
debt. 42 Pa.C.S.A. § 8103(d).
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U.S. v. Shimer, 367 U.S. 374, 377, 81 S.Ct. 1554, 1557 (1961) (footnote
omitted).
Appellants argue that they were entitled to satisfaction of the June 6,
2019 judgments entered against Krishavtar, Inc. and Panchal because
Schluth, who purchased the property at sheriff’s sale, did not petition the court
for a deficiency judgment within six months of the sale as required under
Section 8103(d).10 Schluth purchased the property on August 6, 2019, and
subsequently resold the property in September 2020, three months after this
Court decided Appellants’ First Appeal and vacated the original judgment and
remanded for, inter alia, a determination of damages.
Schluth does not argue that he complied with the DJA. Rather, he
highlights the fact that the trial court issued an order on August 8, 2019,
entered on August 12, 2019, staying all further execution proceedings, thus
relieving him of any obligation to petition for a deficiency judgment for the
duration of the stay. Schluth further argues that the trial court in any event
fixed the deficiency judgment upon remand after the First Appeal, thus making
Appellants’ petitions to have the judgments marked satisfied meritless.
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10We note that the six-month period runs from the date of delivery of the
deed. See Conestoga Bank v. Tioga Investments II, LLC, 138 A.3d 652,
656 (Pa. Super. 2016); 42 Pa.C.S.A. § 5522(b)(2). Here, the deed dated
September 3, 2019 was recorded on September 16, 2019. Although we do
not know the precise date of the delivery of the deed, using the date the deed
was recorded, we can safely conclude that the latest date by which JSW
Holdings ordinarily was required to petition to fix the fair market price under
Section 8103 was six months from the date the deed was recorded.
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Before we can address the merits of Appellants’ issue on appeal, we find
we first are obliged to determine whether Appellants’ pending appeals
challenging the judgments in the Mortgage Foreclosure and Breach of Contract
actions deprived the trial court of jurisdiction to entertain the petitions. While
the parties to this appeal have not raised this issue of jurisdiction, we may do
so sua sponte, as jurisdiction may be raised at any time, even for the first
time on appeal. See Bisher v. Lehigh Valley Health Network, Inc., 265
A.3d 383, 399 (Pa. 2021) (even if the trial court failed to address issues, the
Superior Court has the “power, if not duty, to raise jurisdictional issues sua
sponte”).
Once an appeal is taken, a trial court may no longer proceed further in
the matter. Rule 1701(a) of the Rules of Appellate Procedure divests a trial
court of jurisdiction to proceed in a matter once an appeal has been
filed. Commonwealth v. McClure, 172 A.3d 668, 685 (Pa. Super. 2017).
Rule 1701(a) reflects the fact that once an appeal is filed, jurisdiction over a
matter is transferred to the appellate court, and the trial court therefore no
longer has power to act in the matter. Id., (citing Jackson v. Hendrick, 746
A.2d 574, 575 (2000)). Rule 1701(c), however, contains an exception
permitting a court to proceed with the remaining matters before it when the
appeal pertains to a collateral issue in the case, but only if that collateral issue
is unrelated to and not intertwined with the matters on which the trial court
intends to proceed. Id. The extent to which a trial court may proceed under
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Rule 1701(c) depends on whether the orders on appeal were relevant to or at
issue in the proceedings continuing in the trial court. McClure, 172 A.3d at699 (citing R.W.E. v. A.B.K., 961 A.2d 161, 170 n.7 (Pa. Super. 2008)). To
the extent the matters remaining in the trial court are not dependent on
resolution of the issue on appeal, the trial court may continue to address them.
Id. But when the remaining proceedings in the trial court are "tightly
intertwined" with the collateral matter that is on appeal, the trial court may
not take any action on those intertwined matters until the appeal is
concluded. Id.Here, at the time Appellants filed their Section 8103(d) petitions with
the trial court, their Second Appeal was pending in our Court. In that appeal
Appellants challenged the trial court’s findings that there was no contract
modification based upon the parties’ conduct and that the court erred in
calculating damages when they claimed they presented sufficient proof they
did not owe any money for a putative breach of contract by Schluth. These
issues questioned directly both the liability for, and the amount of, the
judgment Schluth was awarded in the foreclosure action. With liability and
damages at issue on appeal, it would not have been possible for Schluth to
seek a deficiency judgment and for the court to assess a deficiency judgment
because doing so would require first that liability be established and then that
the amount of the judgment be established. This is so because “[a] mortgagee
who purchases the mortgaged property in execution proceedings cannot
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recover a deficiency judgment unless and until the mortgagee obtains a court
determination of the fair market value of the mortgaged property and credits
that amount to the unsatisfied liability.” Shimer, supra. A court cannot
proceed to determine a deficiency while liability and damages are the subject
of a pending appeal. If a judgment’s validity is questionable, then the validity
of all subsequent collection proceedings dependent on that judgment may be
subject to attack as well. Therefore, Schluth could not have petitioned the
trial court to assess a deficiency judgment under Section 8103(a) while the
foreclosure judgment was the subject of Appellants’ Second Appeal as the trial
court would have been without jurisdiction to consider any such petition. The
Second Appeal also could not be considered collateral to the foreclosure
judgment because the appeal directly questioned whether Appellants owed
Schluth any money at all. Therefore, the trial court was without jurisdiction to
consider Appellants’ Section 8103(d) petitions.
Rule 1701(a) likewise would have prevented the trial court from
considering a deficiency judgment petition by Schluth during the pendency of
Appellants’ First Appeal, filed immediately after the judgment in mortgage
foreclosure, for the same reason the trial court could not entertain a deficiency
judgment petition while the Second Appeal was pending. Like their Second
Appeal, Appellants’ First Appeal challenged liability based upon Appellant’s
claim that Schluth committed a material breach, that the court erred by failing
to allow for rescission of the contract, and that the court erred in calculating
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damages. These issues raised the same jurisdictional impediments to seeking
a deficiency judgment as those pertaining to the Second Appeal. It also is
important to acknowledge that this Court’s resolution of the First Appeal
resulted in our vacating the damage awards in both cases. With the damage
awards vacated, there was no basis on remand to seek a deficiency judgment
unless and until damages once again were determined and awarded. When
the trial court did so upon remand, Appellants filed their Second Appeal that
again deprived the trial court of jurisdiction to consider a deficiency judgment
petition. Since the time the property was sold at sheriff’s sale there existed
no time when the trial court possessed continuing jurisdiction to entertain a
deficiency judgment petition by Schluth due to the pendency of Appellants’
various appeals, including the present one. We therefore find we must vacate
the trial court’s denial of Appellants’ petitions to mark the June 6, 2019
judgments as satisfied, released, and discharged under Section 8103(d), due
to a lack of jurisdiction in the trial court to act while there were pending
appeals in this Court.
While we have found little precedent to guide us on the issue of trial
court jurisdiction while an appeal is pending within the context of the DJA, the
cases of Leasing Service Corporation v. Benson, 464 A.2d 402 (Pa. Super.
1983) and First Seneca Bank v. Greenville Distributing Company, 533
A.2d 157 (Pa. Super. 1987), are both instructive and persuasive.
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In Leasing Service, the appellant, John W. Benson (“Benson”), filed a
petition to strike and/or open a judgment by confession entered against him
by the appellee, Leasing Service Corporation (LSC), based upon a default
under a lease agreement for mining equipment to Appalachian Pocahontas
Coal Co., Inc. (“Appalachian”) that Benson unconditionally guaranteed. The
lower court denied the petition and Benson appealed at docket No. 592
Philadelphia, 1980.
LSC proceeded with the sale of the formerly leased equipment and was
the sole bidder and purchased all of the repossessed equipment for $79,000.
It then filed a claim against Appalachian for the deficiency resulting from the
sale of the equipment. The court hearing the matter determined that LSC was
barred from recovering any deficiency from Appalachian because LSC did not
act in a commercially unreasonable manner in the sale and disposition of the
equipment, thus leaving Appalachian free of any further indebtedness to LSC.
Based upon the release of Appalachian, Benson argued that as a guarantor he
too was released and demanded that LSC mark the judgment against him
satisfied pursuant to 42 Pa.C.S.A. § 8104. In response, LSC filed a petition
to have Benson’s satisfaction demand declared a nullity. The court granted
LSC's petition and denied counter-petitions by Benson. Benson then filed a
second appeal to the Superior Court at No. 1041 Philadelphia, 1982.
In resolving Benson’s Section 8104 appeal at No. 1041, Philadelphia,
1982, we affirmed the lower court’s decision to have the satisfaction demand
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by Benson declared a nullity, but not on the grounds relied upon by the lower
court. At the time Benson made his June 30, 1981 demand under Section
8104 to release his guaranty based upon LSC being barred from recovering
any deficiency against Appalachian, our Court already had jurisdiction of his
appeal at No. 592 Philadelphia, 1980 that, inter alia, challenged both the
very validity of the judgment and the amount owed in that confession of
judgment action. We stated that the appeal was a full-force attack on all
meaningful aspects of the judgment which Benson was at the same time then
attempting to have marked satisfied under Section 8104 in his appeal at No.
1041 Philadelphia, 1982. We held that the court was correct to have the
satisfaction demand declared a nullity, but not by evaluating the merits of the
dispute. Instead, the court should have acted upon procedural grounds
mandated by Rule 1701 of the Rules of Appellate Procedure. By addressing
the merits, the lower court improperly delved into the merits of an issue that
directly affected a matter then on appeal before our Court.
First Seneca Bank is instructive as it demonstrates both when a trial
court may act while an appeal is pending and when it may not. In First
Seneca Bank, Greenville Distributing Company (“Greenville”) executed and
delivered to the appellant, First Seneca Bank, a mortgage of $140,000. The
mortgage was executed on behalf of Greenville by its president, Robert M.
Woods. Separately, other individuals, together with Woods (collectively
appellees), executed a note for $140,000 that contained a confession of
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judgment clause. The bank subsequently confessed judgment on the note as
against the individuals. When Greenville stopped making payments on the
note, the bank filed a two-count complaint. The first count was in mortgage
foreclosure against Greenville only. The second was in assumpsit against the
bank and the individuals on the note. The court severed the count in mortgage
foreclosure from the count in assumpsit and entered a default judgment
against Greenville in the mortgage foreclosure action for $93,016.42 plus
interest. The property was then sold at sheriff sale to the bank for $60,000.
On that same day, the bank filed in the mortgage foreclosure action a petition
to fix a deficiency judgment against Greenville and the individual appellees.
By order dated March 27, 1985, the court gave Greenville credit against the
judgment in the mortgage foreclosure action and found the deficiency in that
action to be $35,474.16.
The bank appealed (the first appeal) claiming it was entitled to a
deficiency judgment of $70,474.16. The appellees then petitioned in the lower
court to strike the deficiency judgment.11 The court agreed and by order dated
June 11, 1985, it struck the deficiency judgment as well as the bank’s petition
to fix a deficiency. In that same order, the court also dismissed the count in
assumpsit to collect on the note and marked the confessed judgments against
the individual appellees satisfied, discharged, and released. The bank filed a
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11 This was the second time appellees petitioned to strike the deficiency
judgment.
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second appeal raising, inter alia, whether the trial court lacked jurisdiction to
enter the June 11, 1985 order that struck the deficiency judgment because an
appeal had been filed from the prior order of March 27, 1985,that set a
deficiency at $35,474.16. Because both appeals involved the same parties
and the same mortgage foreclosure proceedings, we consolidated them for
disposition on appeal.
In addressing the bank’s first appeal relating to the amount of the
deficiency judgment, we raised sua sponte whether the court had subject
matter jurisdiction to consider the deficiency judgment petition in the
mortgage foreclosure action in light of Meco Realty Company v. Burns, 200
A.2d 869 (Pa. 1964). We held it did not because at that time a deficiency
judgment could not be sought in a mortgage foreclosure action, an in rem
proceeding.12 Id. The court lacked jurisdiction to consider the deficiency
judgment petition in the in rem mortgage foreclosure action and the deficiency
judgment consequently was void and had to be vacated.
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12 Under that prior regime, lenders often found themselves in somewhat of a
catch-22 whereby they could not obtain a deficiency judgment without first
obtaining a personal judgment. Procedural delays in obtaining a personal
judgment could push a lender well past six months after foreclosure for filing
a petition for a deficiency judgment. See Harris Ominsky, The Lender's
Gauntlet Revisited, 30 Vill. L. Rev. 1130, 1133 n.14 (1985),
https://digitalcommons.law.villanova.edu/vlr/vol30/iss5/3. As a result of
1978, 1998, and 2004 amendments to the DJA, these obstacles to obtaining
a deficiency judgment have been removed so that now petitions to fix fair
market value are to be filed as supplemental proceedings to mortgage
foreclosure actions. Irongate Ventures, supra.
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In the bank’s second appeal challenging whether the lower court could
act while the bank’s first appeal was pending, we agreed, consistent with our
conclusion in the first appeal, that the March 27, 1985 order that purported to
enter a deficiency judgment in the mortgage foreclosure action was void. We
concluded, however, that to the extent the order and judgment attempted to
strike off the deficiency judgment in the mortgage foreclosure action while the
first appeal was pending, the court was without jurisdiction to proceed and
that portion of the order and judgment had to be vacated. We went on to
conclude however, that the June 11, 1985 order and judgment did not have
to be vacated in its entirety because that order also related to the petition to
have the confessed judgments marked satisfied in the assumpsit action. We
stated that the prohibition against further proceedings in the trial court under
Pa.R.A.P. 1701(a) is limited only to those items, claims, or assessments
involved in an appeal as provided for under Pa.R.A.P. 1701(c).13 Because the
March 27, 1985 judgment on appeal did not relate to the confession of
judgment action, but only to the deficiency in the mortgage foreclosure action,
the court had jurisdiction to consider the petition to have the confessed
judgment marked satisfied in the assumpsit action. As well, the court had
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13 Pa.R.A.P. 1701(c) provides in part that “[w]here only a particular item,
claim, or assessment adjudged in the matter is involved in an appeal . . . the
appeal . . . shall operate to prevent the trial court . . . from proceeding further
with only such item, claim, or assessment, unless otherwise ordered by the
trial court or . . . the appellate court or a judge thereof as necessary to
preserve the rights of the appellant.”
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jurisdiction to consider the petition to dismiss the complaint in assumpsit
because the petition did not relate to the mortgage foreclosure action that was
on appeal, but to a separate cause of action that had been severed from the
cause of action to which the March 27, 1985 order related. Therefore, we
vacated the judgment entered in the mortgage foreclosure proceedings that
had been entered after the first appeal had been taken, as well as that portion
of the June 11, 1985 order that related to those proceedings, but affirmed the
June 11 order to the extent it directed the confessed judgments to be marked
satisfied, discharged, and released, and the complaint in assumpsit dismissed.
The holdings in Leasing Service and First Seneca Bank assist in the
present appeal because they confirm that while an appeal is pending, a trial
court is without jurisdiction to proceed further with respect to any claims,
items, or assessments involved in a pending appeal. The extent to which a
lower court may proceed during a pending appeal depends upon whether the
issues on appeal are relevant to or at issue before the lower court. McClure,
supra. Where the remaining proceedings in a lower court are “tightly
intertwined” with the matter on appeal, the lower court may not take any
action on those intertwined matters until the appeal is concluded. Id. Here,
as previously stated, Appellants’ Section 8103(d) petitions to have Schluth’s
foreclosure judgment marked as satisfied, discharged, and released could not
be acted upon while Appellants’ appeals were pending before our Court. At
the time Appellants’ petitions were filed, Appellants had appeals pending
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challenging liability for the judgment, and even if affirmed to be liable,
whether the amount awarded was proper. In fact, it was Appellants’ position
that they did not owe Schluth any money. Schluth could not petition the trial
court for a deficiency judgment while the appeals were pending because a
court's ability to fix a deficiency judgment once the fair market value of a
property is ascertained, can only be measured against the amount of a valid
judgment to arrive at the balance due, which then would constitute the
deficiency judgment. Appellants’ appeals challenging the foreclosure
judgment precluded the trial court from considering deficiency judgment
proceedings.
In his brief, Schluth argues almost exclusively that the court’s August
8, 2019 order, entered on August 12, 2019, staying all further execution
proceedings, relieved him of any obligation to petition for a deficiency
judgment for the duration of the stay. This argument misses the mark. The
stay order was entered only in the Breach of Contract Case.14 A deficiency
judgment now must be sought as a supplemental proceeding in the matter
that produced the foreclosure judgment. See Section 8103(a). Therefore, a
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14 The record provides no explanation as to why the trial court’s stay of
execution proceedings upon reconsideration was entered only in the Breach
of Contract Case when the petition for reconsideration was filed to both
actions. It is known, however, that the property was sold shortly before the
stay order was entered.
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stay in the Breach of Contract Case may not necessarily stay proceedings in
the Foreclosure Case.
Schluth also argues that Appellants’ claim is meritless because the trial
court on remand assessed a deficiency judgment. We disagree. Our decision
of June 30, 2020 in the First Appeal remanded the matter to the trial court to
make factual findings whether there was a modification of the payment terms
under the Note and Mortgage and then to enter an amount of damages
consistent with those findings. At the time the First Appeal was filed, the
property had been sold at sheriff’s sale to Schluth but had not yet been sold
in a private sale for $600,000.15 On remand, the court found that there had
been no modification of the payment terms and then proceeded to determine
damages. In doing so, the trial court arrived at a net damage award to Schluth
by reducing the damage award by the net sum received from the sheriff’s sale
and the subsequent private sale, and then by adjusting the interest due. The
court arrived at a revised damage award of $92,616.09 which was entered as
a judgment on March 8, 2021. In its findings of fact and conclusions of law
supporting this net damage award to Schluth, the trial court did not refer to
the net award as a “deficiency judgment.” Rather, the award first was referred
to as a “deficiency judgment” in the trial court’s September 7, 2021 order
denying Appellants’ petitions to mark the judgments satisfied wherein it stated
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15 Consequently, our remand order to redetermine damages could not have
contemplated the private sale amount as a part of the remand order.
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that following remand, the court, on March 8, 2021, issued findings of fact
and conclusions of law which set a “deficiency judgment” of $92,616.09. See
n.8. Appellants apparently accepted this characterization as they too in
connection with their application for a stay of execution proceedings ancillary
to their Second Appeal to this Court, referred to the $92,616.09 judgment as
a “deficiency judgment.” See Application of Appellants, Krishavtar, Inc. and
Barkrushna Panchal, for Stay of Execution Proceedings, 8/6/21, at ¶¶ 7, 11,
18 and 23. Regardless, referring to this damage award as a “deficiency
judgment” does not make it so.
Under Section 8103(a) of the DJA, whenever real property is sold to a
judgment creditor and the price is not sufficient to satisfy the amount of the
judgment, in order to collect the balance due, the judgment creditor must file
a petition with the court to fix the fair market value of the real property sold.
The determination of fair market value is central to the court fixing the amount
of a deficiency judgment and the amount that all debtors are entitled to be
credited against the balance due on a judgment. See generally, 42 Pa.C.S.A.
§ 8103(c). Where the fair market value of the property is in dispute, the court
is obligated to hear evidence to determine and fix the fair market value of the
property sold. Id. Here, no petition was filed to initiate the deficiency
judgment process under the DJA. Nor was the trial court presented with any
evidence as to the fair market value of the property sold. The amount of
$600,000 that was used by the court to come to a net damage award may or
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may not have reflected the fair market value of the property. While it is
possible the parties could have agreed to this value as fair market value or
that this amount ultimately could have been determined as fair market value,
the amount was not subject to any fair market value evaluation. Without a
petition alleging this amount as fair market value and the court accepting it
as fair market value, or determining otherwise by hearing disputed evidence,
the trial court’s net damage award determined upon remand cannot be
considered a deficiency judgment as that is contemplated under the DJA. The
DJA sets forth specific procedures for the filing and consideration of fixing the
fair market value of a property after a foreclosure sale in order to arrive at a
deficiency judgment. The trial court’s shortcut to this end, without an
appropriate petition before the court, in calculating a net damage award upon
remand did not meet the requirements of the DJA and therefore, its net award
could not be considered a deficiency judgment.
We have not been asked to consider the amount of a deficiency
judgment in this appeal, as this appeal is limited to whether the trial court
erred in denying Appellants’ Section 8103(d) petitions. Our decision today
does no more than to conclude that the trial court did not possess jurisdiction
to consider the Section 8103(d) petitions. When the trial court again is vested
with jurisdiction over these cases, Schluth, if he so chooses, may seek a
deficiency judgment within six months of jurisdiction being returned to the
trial court. The return of these cases to the trial court when it again regains
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jurisdiction may be the first time in these lengthy proceedings when the trial
court may be able to consider a deficiency judgment petition to fix the fair
market value of the property sold and to arrive at a deficiency judgment.16
Order vacated and case remanded to the trial court. Jurisdiction
relinquished.
Judge Bowes files a concurring opinion in which Judge Stabile joins.
Judge McLaughlin files a concurring opinion.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 7/31/2023
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16 We offer no opinion at this time as to the effect of the trial court’s prior net
award of damages to Schluth in the amount of $92,616.09, as that may bear
upon any deficiency judgment proceeding. Our June 30, 2020, remand order
merely directed the trial court to determine whether the parties modified the
payment terms of their agreements and to enter an amount of damages
consistent with those findings. We in no way intended or instructed that
revisiting the amount of damages should include deficiency judgment
proceedings. We also note that none of the parties in the Second Appeal
raised any issue that the net damage award found by the trial court did not
qualify as a deficiency judgment.
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