2004 D e c i sion s O p inion s of the U nit e d S t at e s C our t of Appe al s for the Thir d C ir c uit 2-26-2004 

# Levine v . Litm a n P r e c e de n t i al or N on-P r e c e de n t i al : N on-P r e c e de n t i al D ocke t N o . 03-1790

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w . vi l l a no va . e du/thir dc ir c uit_2004/975NOT PRE CEDENT IAL UNITED STATES COURT OF APPEALS FO R T HE TH IRD CIR CU IT
No. 03-1790

LAWRENCE A . LEVINE, Appellant
v. EUGENE M. LI TMAN; EUG ENE M . LITMAN , Executor of the Est ate of H. Raymond Litman; JAMES W. Mc CARTHY

On A ppeal from the Un ited States District Co urt for the We stern D istrict of P enns ylvania D.C. CivilAction No. 02-cv- 02110 (Honorable Art

hur J. Schwab)
Submitte d Pursuant to Third Circ uit LAR 34.1(a)

February 9, 2004 Be for e: S CIR ICA , Chief Judge , RO TH and M cK EE , Circuit Judges (Fil ed: Februar

y 26, 2004)

OPINI ON OF THE COURT2

SC IRI CA , Chief Judge
. In thi s bankrupt cy pr oceeding, debtor Lawrence A. Levine sought t o establ ish that creditors Eugene M. Litman, indivi dually and as Executor

of the Est ate of H. Raymond Litm an, an d Jam es W . Mc Carth y (collective ly, “the Litm an G roup ”) com mitted extrins ic fraud that would jus tify invali dating a

prior Pennsylvania j udgment agains t Levine. The Ban krup tcy Cou rt foun d no evide nce o f extrin sic frau d and gran ted su mm ary judgm ent in favor of the Litman Group. The cour t als o held Levine’ s objection to t he clai m of the Litm an G rou p w as u ntim ely. W e w ill affirm. I. The Litman Group owned 100% of the stock of Penn West Associ ates, Inc., which operate d a nursi ng home known as the Wilkins House. On April 18, 1991, the Litman Group obt aine d a $4, 518,0 00 mort gage on t he Wilk ins House, ins ured b y t he U.S. Department of Housi ng and Urban Development. In order t o obtain mortgage insur ance, the Lit man Group entered i nto a Regulat oryAgreement with HUD, requiring written HU D a ppr ova l for the tr ans fer a ny of its Pe nn W est’s inter est. On M ay 1, 1993, Lawrence Levine purchased 100% of the common stock of Penn West Assoc. fr om the Litman Group. Levine paid $55, 000 at the time of cl osing and gave a $225,000 pr omissory note. Shortl y aft er the s tock transfer, the Department of Health conduct ed an inspec tion of t he Wilkins House and di scovered defi cienci es rel ated to pati ent car e, admini stration and di etary servi ces. Levi ne borrowed working capital1 According to Levine, the Litman Group removed t he signat ure page from t

he April 10 Prom issory N ote sign ed by L evine and a ttache d it to the M ay 29 P rom issory N ote sub mitte d to HU D b y the L itma n G rou p. 3 from the Lit

man Group to correc t thes e defici encies and to run t he Wilkins House. When Levine was unable to repay these l oans, t

he Litman Group brought suit in st ate court and, on September 26, 1994, obta ined judgment by confes sion. Levine petitioned to open judgment and as sert counterc laims, and on March 13, 199 6, ju dgm ent w as o pen ed. L evin e alle ged , inter alia, that t

he Litman Group had not obtaine d the requi sit e writt en approvalfrom HUD for his 1993 stock pur chase, and that the L itman Gro up h ad su bm itted a fr audu lent pro misso ry note to H UD in ord er to ob tain approv al for the transfer. 1 Had he known of the fraudulent misrepr esentation, Levine argued, he would have reevaluated his decision to purchase the stock. Levine also maintai ned there was no obligation to pay back the money

he borrowed from the Litman Group to rectify

the fi nancialdefici encies e xposed bythe HUD inspection be cause the Litman Group sti ll owned the Wilkins House at the time of the ins pecti on. At the October

1996, non-j urytri al, Litman Group member James McCarthy test ifie d that HUD had not approved t he trans acti on with Levine at the time of the May 1, 1993 closi ng. But McCarthy also t esti fied that Levine kne w there was no HUD approval and sti ll wante d to procee d with the t ransaction. On March 18, 1997, the st ate j udge entered a verdict i n favor of the Litman G roup. Following denial of post tri al motions, Le vin e ap pea led b ut lat er w ithd rew it.4

On Novem ber 18, 1998, Levine fil ed a volunt ary petition for r eorganiz ation unde r Chapter 11 of t

he Bankruptcy

Code. On March 26, 1999, the Litman Group fil ed a proof of clai m. On May 9, 2002, Levi ne fil ed an objection to t he clai m, which the Bankruptcy Court tr eated as an adversar y compla int upon Li tman’s r equest. The Litman Group fil ed a motion for

judgment on t

he pleadi ngs, which t

he Bankruptcy

Court converted to a motion for s ummary judgment as reques ted by

Levine. Afte r hearing arguments, the Bankruptcy

Court grant ed the Lit

man Group’s motion for summary j udgment. The Dis trict C our t aff

irme d. On appeal, Levi ne clai ms the court wronglyheld that evide nce all egedly concealed by the L itman Gro up d uring the state cour t trial did n ot prev ent him from receiv ing a fair trial. Lev ine also claim s the B ankr uptcy C ourt er red in finding his ob jection to the c laim of the Lit

man Group to be unti mely, and it e rred i n denying his moti on to compel McCarthy’s atte ndance at depos iti on. II. We have juris dicti on pursuant to 28 U.S.C. § 158(d). We exercise pl enary review
ove r the Dis trict C our t’s en try of s um ma ry judg me nt. Cu rley v. K lem , 298 F.3d 271, 276 -77 (3 d C ir. 2002 ). “Ou r review of the district co urt’s de cision e ffec tively amo unts to review of the bankruptc y cour t’s opinion in t

he firs t ins tance. ” San ta F e M edic al S erv s., Inc . v. Se gal (In re Seg al), 57 F. 3d34 2, 34 5 ( 3dCi r . 19 95 ) ( ci t ati on s o mi t t ed )
. We5

review Levine’ s claim that t he court improperly

restrict ed discover

y for abuse of disc retio n. Bra dley v. United Sta tes, 299 F .3d 197, 20 6-07 (3d Cir. 2002 ). III. A. State c ourt j udgments are given the same ful l fai th and cre dit by federalcourts as would be given by

the court s of the s tate s from which they are taken. FullFaith and Cred it Act, 2 8 U .S.C. § 173 8; Wr igh t v. G eor gia R.R . & Ba nkin g C o., 216 U.S. 420, 428- 29 (1910). Federal c ourts honor the res judicata effects of final judgments in stat e courts,
exc ept u nde r ve ry limite d cir cum stan ces . Am eric an S ure ty C o. v. B ald win , 287 U.S. 156, 166 (193 2); Gr ego ry v . Ch ehi, 843 F.2 d 11 1, 11 6 (3 d C ir. 19 88) . Be cau se o f this , a fede ral cou rt may no t reexa mine the issu es de termin ed by a s tate jud gm ent, no r may it allow an a ttack bas ed o n a p roc edu ral m atter rejec ted in pre vio us litig ation
. Heiser v. Wo odr uff, 327 U.S . 726 , 736 (19 46)
. Neverthel ess, a federalcourt may refuse t o honor a st ate court judgment if the judgment was void ab initio. In Pe ppe r v. L itton , the S upre me C ourt allo we d a de btor to chall enge a state court

judgment i n bankruptcy court on t

he ground that

the judgment obtaine d by fr aud was void ab in itio for proce dural reason s. 308 U .S. 295, 301 -03 (193 9) W e h av e n ot ed th at a sta te c ou rt ju dg m en t m ay o nl y be en jo in ed or ot he rw ise up se t b y a fed eral c our t if a c our t of th e issu ing state wo uld uph old the c halle nge . In re Highway Tru ck D rive rs & H elpe rs L oca l 10 7, 888 F.2 d 29 3, 29 9 (3 d C ir. 19 89)
.6

Under Pennsylvania l aw, a finaljudgment chal lenged on the basis of fraud maybe voi ded onl y for a cts o f ex trins ic fr aud , not for intrin sic f rau d. McEv oy v. Q uake r City Ca b C o., 110 A. 3 66, 36 8 (Pa . 1920 ); McG ary v. Le wis , 119 A.2 d 49 7 (P a. 19 56)
. Extrins ic fraud ty

pical ly addresse s procedur al matt ers “col late ral t o the matt er tried by the firs t court , and not

to a fraud in the mat

ter on which t

he decree was re ndered.” McEvoy, 110 A. at 3 68. E xam ples o f extrin sic frau d m ight inc lude a party secu ring a d efau lt judgment aft er fal sely

certi fying that it ser

ved the defendant

with the c omplaint ; an attor ney “s elling out” his clie nt’s interes t to bene fit t he opposing par

ty ; or a par

ty keeping
an o ppo sing par ty aw ay fro m c our t on the false pro mis e of a co mp rom ise. Id. at 367 ; In re K ova lchic k, 175 B.R. 863, 868 ( Bankr. E.D. Pa. 1994). Accordingly , the Bankruptcy Co urt ma y void a s tate co urt judg men t only if that ju dgm ent w as pro cured by extrins ic fraud. Lev ine co ntend s the alle gedly fa lsified d ocum ent sen t by the L itman Gro up to HUD and the Lit

man Group’s all eged failure to di sclose to him the lack of HUD approval consti tute a cts of ext

rinsi c fraud. The Distri ct Court f ound, however, that t

hese all eged inst ances would not a ffect Levi ne’s abi lit y t o present

“a fair submissi on of the
con trov ersy,” b ut ar e ins tead intrin sic f rau d. See McG ary , 119 A.2 d at 50 1. Intrins ic fraud m ay not nullify a prior state court judgm ent. Acco rdingly, the District Court properl y uphel d the March 18, 1997 state court judgment against Levine.2 The Ban krup tcy Cou rt gran ted L evine safe h arbo r regar ding the tim eliness of h is

requ est un der 1 1 U .S.C. § 108 (c) fo r the pe riod af ter N ovem ber 1 8, 199 8 (the d ay his bankruptcy case commenced). Section 108(c) reads: (a) I f appli cable nonbankr uptcy law, an orde r entered in a nonbankr uptcy proceedi ng, or an agreement fixe s a peri od within which t he debtor may commence an action, and such peri od has not expired before t he date of t

he fil ing of the pet iti on, the trustee may commence such ac tion only befor e the l ater of – (1) the end of such peri od, inc luding any suspensi on of such peri od occurring o n or after the co mm encem ent of the ca se; or (2) two years after

the order

for rel ief. U.S.C . § 108(c).
3 Although Levine cited no rea sons for t he delay in his appell ate bri ef, hi s counsel (co ntin ued ...) 7 B. Once a party

has evidenc e of extr insi c fraud for pur poses of voi ding a Pen nsylv ania cou rt jud gm ent, it mu st ac t pro mp tly. Nix on v . Nix on, 198 A. 154, 159 (Pa. 193 8); McG ary , 119 A.2 d at 50 1; accord DuF rayne v. FTB M ortgage Servs., Inc. (In re Du Fra yne

), 194 B.R . 354 ( Ban kr. E.D . Pa. 19 96). If th e party ha s not a cted p rom ptly, it
mu st pro vid e a re aso nab le ex plan ation for the d elay. Lin coln Ba nk v . C & H A gen cy, In c., 456 A.2 d 13 6, 140 (Pa. 1 982 ) (“Th e cruc ial facto r in dete rminin g w hethe r the pe tition is timel y i s not the specif

ic time which has elaps ed, but the rea sonablenes s of the expla nation given for the delay.”). A n abs ence of p rejudic e tow ards th e opp osing party
can also stren gth en th e po sition of th e pe tition er. Id. Not only was there no ext

rinsi c fraud, Levine did not act prompt ly . After l earning of the allege d frau d on June 19, 20 02, he failed to ob ject to the Litm an G roup ’s claim until Ma y 9, 2002, nearly four years later. 2 H e o ff er ed no re as on fo r th e d ela y. 33 (.. .cont inued)

men tioned seve ral reaso ns du ring the Sep temb er 9, 20 02 h earing . Cou nsel allu ded to “overtures” to “t

ryto recons truct

and settle that case” that were refused by the Lit man Group; “the i ssue of the RICO action;” and the fact that t hey were “f

ighting the Penn W est b ank rup tcy at th at tim e.” 8 Furth ermo re, the L itman Gro up w ould be pr ejudic ed by the delay sinc e one of its defe ndan ts, Eug ene L itman , a key w itness, d ied af ter the B ankr uptcy C ourt re nder ed its decisi on. The District

Court denie d Levine’s obj ecti on to the c laim, finding t hat Levine neith er fi led a time ly colla teral attac k no r pro vid ed a reas ona ble e xpl ana tion for the d elay. We see no erro r. C. Levine cla ims the Dis tri ct Court e rred i n affirmi ng the Bankrupt cy Court ’s deni al of his r equest t o take McCarthy ’s deposi tion. But on appeal, Levine fai led to f ile an affid avit statin g his re ason s for th e requ est, as req uired b y Fed. R . Civ. P . 56(f). T his failu re is u sua lly fata l to a c laim of in sufficie nt d isco ver y on a ppe al. Bradley v. United Sta tes, 299 F.3 d 19 7, 20 7 (3 d C ir. 20 02)
. Even overlooki ng Levine’s f ailure to submit

an affidavi t, we do not see how further testimony from M cCarthy would aid Levine. In his a ppellate bri ef, Levine contends t

hat his deposit ion of McCarthywould likely demonst rate t hat (1) the Lit

man Group had not obtained prior HUD approval f

or the May 1, 1993 stock t ransaction, and (2) the Litman Group act ively concealed t

he all egedly

fraudule nt let

ter s ent to HUD. The content s of the l ette r merely confirmed McCarthy ’s October 1996 testimony t

hat the9

Litman Group did not

recei ve HUD approval prior t o the transacti on. A deposition of McCarthy at

this point would add not hing material. The Distri ct Court c orrectly affirmed th e B an kr up tcy C ou rt’ s d en ial of Le vi ne ’s r eq ue st t o d ep os e M cC ar th y.

IV. For th e fore goin g reas ons, w e w ill affirm the jud gm ent of the D istrict Co urt.