Court Opinion

ID: 4299531
Source: CourtListenerOpinion
Date Created: 2018-07-31 17:00:17.948818+00
Date Added: 2024-06-11T14:42:12.389001
License: Public Domain

NOT PRECEDENTIAL

                       UNITED STATES COURT OF APPEALS
                            FOR THE THIRD CIRCUIT

                                       No. 18-1249

                       U.S. BANK, NATIONAL ASSOCIATION,

                                                                 Appellant

                                             v.

                                 MAURY ROSENBERG

                     On Appeal from the United States District Court
                        for the Eastern District of Pennsylvania
                         (District Court No.: 2-12-cv-00723)
                      District Judge: Honorable Cynthia M. Rufe

                      Submitted under Third Circuit L.A.R. 34.1(a)
                                   on July 10, 2018

           Before: SHWARTZ, NYGAARD, and RENDELL, Circuit Judges

                              (Opinion filed: July 31, 2018)

                                      O P I N I O N*

*
 This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not
constitute binding precedent.
RENDELL, Circuit Judge:

       U.S. Bank appeals the District Court’s order denying its motion for mutual

judgment satisfaction. Because the District Court did not abuse its discretion in denying

the motion, we will affirm the District Court’s order.1

                                             I.

       Because we write for the parties, we set out only what is necessary to explain our

decision. Appellee Rosenberg established National Medical Imaging (“NMI”), an

imaging company comprised of several limited partnerships and a limited liability

company. NMI entered into equipment leases with predecessors-in-interest to Appellant

U.S. Bank (“U.S. Bank”). In 2003, NMI defaulted on the equipment leases. U.S. Bank

brought suit against NMI and Rosenberg. The parties settled the suit pursuant to modified

lease agreements, under which NMI would continue to lease the equipment at a monthly

rate of $100,000. As part of the settlement agreement, Rosenberg would be personally

liable for approximately $7,600,000 in the event of another default, but Rosenberg’s

liability would be reduced by about $127,000 for each monthly payment NMI made

under the modified equipment leases.

       After twenty-one months, NMI defaulted on the modified equipment leases,

leaving Rosenberg personally responsible for about $5,000,000. Entities related to U.S.

Bank (“DVI Entities”) filed an involuntary bankruptcy petition against Rosenberg in the

Eastern District of Pennsylvania. The involuntary bankruptcy proceeding was transferred

1
 The District Court had jurisdiction under 28 U.S.C. § 1332. We have jurisdiction under
28 U.S.C. § 1291.
                                             2
to the United States Bankruptcy Court for the Southern District of Florida, where

Rosenberg lived. The Bankruptcy Court for the Southern District of Florida dismissed the

involuntary bankruptcy petition.

         After the involuntary bankruptcy petition was dismissed, Rosenberg filed an

adversary action in the Bankruptcy Court for the Southern District of Florida against U.S.

Bank and the DVI Entities under 11 U.S.C. § 303(i), which allows a plaintiff to recover

costs, attorney fees, and damages for the bad faith filing of an involuntary bankruptcy

petition. U.S. Bank and the DVI Entities moved to withdraw the reference to the District

Court. The motion was granted, and Rosenberg’s § 303(i) bad faith claim proceeded to a

jury trial in the District Court for the Southern District of Florida. The jury found in favor

of Rosenberg and awarded him approximately $1.1 million in compensatory damages and

$5 million in punitive damages. Although the District Court vacated the punitive

damages award and reduced the compensatory damages award, the Eleventh Circuit

reinstated the jury's verdict, and a final judgment of $6,120,000 was entered in the

Southern District of Florida in favor of Rosenberg and against U.S. Bank and the DVI

Entities. Rosenberg v. DVI Receivables XIV, LLC, 818 F.3d 1283, 1285-86 (11th Cir.

2016).

         While the § 303(i) litigation was pending, U.S. Bank filed suit against Rosenberg

in the Eastern District of Pennsylvania for breach of contract, alleging that because NMI

had defaulted under the modified leases, Rosenberg was personally liable. After a bench

trial, the District Court found in favor of U.S. Bank and awarded U.S. Bank

approximately $6.5 million in damages, fees, and costs.

                                              3
       U.S. Bank filed a motion for mutual judgment satisfaction in the Eastern District

of Pennsylvania, requesting that the District Court offset the $6,120,000 Southern District

of Florida § 303(i) judgment against the $6.5 million Eastern District of Pennsylvania

contract judgment. If the District Court granted U.S. Bank’s motion, Rosenberg would

owe U.S. Bank approximately $380,000, and U.S. Bank would owe Rosenberg nothing.

The District Court denied U.S. Bank’s motion. U.S. Bank appealed.

                                            II.

       We review the District Court’s order for abuse of discretion. Otos Tech Co. v.

OGK Am., Inc., 393 F. App’x 5, 8 (3d Cir. 2010) (citing N. Chi. Rolling-Mill Co. v. St.

Louis Ore & Steel Co., 152 U.S. 596, 615 (1894)). Cf. Foster v. Mut. Fire, Marine &

Inland Ins. Co., 614 A.2d 1086, 1095 (Pa. 1992) (setoff is “an equitable right to be

permitted solely within the sound discretion of the court”). We will not disturb the

District Court’s exercise of discretion unless “no reasonable person would adopt the

district court’s view.” Stecyk v. Bell Helicopter Textron, Inc., 295 F.3d 408, 412 (3d Cir.

2002) (citation and internal quotation marks omitted). U.S. Bank’s motion for mutual

judgment satisfaction was filed under Federal Rule of Civil Procedure 69(a), which

provides that “[a] money judgment is enforced by a writ of execution . . . . The procedure

on execution . . . must accord with the procedure of the state where the court is

located[.]” The parties agree that Pennsylvania law governs under Rule 69.

       The District Court provided two rationales for its decision to deny the motion for

mutual judgment satisfaction. First, it reasoned that the two judgments were not “mutual”

because the parties involved in the two judgments were not identical. For example, the

                                             4
DVI Entities were jointly and severally liable for the Southern District of Florida

judgment, but they were not entitled to any part of the Eastern District of Pennsylvania

judgment. In addition, Rosenberg had assigned his interest in the Southern District of

Florida § 303(i) judgment to a trust for the benefit of his son. And, according to

Rosenberg, several attorney charging liens recorded against the Southern District of

Florida judgment had priority over U.S. Bank’s setoff claim to that judgment.

       U.S. Bank argues that the District Court’s conclusion on the issue of mutuality

was erroneous. However, we need not decide the merits of this argument because the

District Court provided an alternative basis for its denial of the motion: “the equitable

principles embodied in § 303 of the United States Bankruptcy Code preclude setoff.” U.S.

Bank, Nat’l Ass’n v. Rosenberg, 581 B.R. 424, 429-30 (E.D. Pa. 2018).

       The District Court did not abuse its discretion in denying U.S. Bank’s motion for

mutual judgment satisfaction based on equitable principles. Setoff is “an equitable right

to be permitted solely within the sound discretion of the court.” Foster, 614 A.2d at 1095.

The filing of an involuntary bankruptcy petition has devastating consequences for the

putative debtor. The Bankruptcy Code’s good faith filing requirement, which has “strong

roots in equity,” In re Forever Green Athletic Fields, Inc., 804 F.3d 328, 334 (3d Cir.

2015) (citations and internal quotation marks omitted), seeks to prevent the improper

filing of involuntary petitions and “ensures that the Bankruptcy Code’s careful balancing

of interests is not undermined by petitioners whose aims are antithetical to the basic

purposes of bankruptcy[,]” In re Integrated Telecom Express, Inc., 384 F.3d 108, 119 (3d

Cir. 2004). As the District Court correctly noted, § 303(i) plays a key role in deterring

                                              5
bad faith filing and remedying the negative effects of improperly-filed petitions. Several

courts have concluded that § 303(i)’s equitable purpose would be frustrated if bad faith

filers were allowed to offset a § 303(i) judgment. See, e.g., In re Macke Int’l Trade, Inc.,

370 B.R. 236, 255 (B.A.P. 9th Cir. 2007) (“The consensus of courts is that a setoff of this

sort is impermissible.”); In re Diloreto, 442 B.R. 373, 377 (E.D. Pa. 2010) (“the

allowance of a setoff right would severely weaken the purpose of 303(i)”); In re Forever

Green Athletic Fields, Inc., Bankr. No. 12-13888-MDC, 2017 WL 1753104, at *7

(Bankr. E.D. Pa. May 4, 2017) (adopting Macke's reasoning to deny setoff of a § 303(i)

award); In re K.P. Enter., 135 B.R. 174, 185-86 (Bankr. D. Me. 1992) (denying setoff of

a § 303(i) award because setoff would “blunt” the policies underlying § 303(i)); In re

Schiliro, 72 B.R. 147, 149 (Bankr. E.D. Pa. 1987) (“[A]n award pursuant to § 303(i)

should not and cannot be permitted to be set off against the unsuccessful petitioning

creditor’s claims against the Debtor”). See also 2 Collier on Bankruptcy ¶ 303.33[8]

(16th ed. 2018) (“[S]etoff would undermine the goals of section 303(i)”).

       Here, a jury determined that U.S. Bank acted in bad faith when it filed the

involuntary bankruptcy petition against Rosenberg. It concluded that Rosenberg was

entitled not only to compensatory damages under § 303(i) but also to substantial punitive

damages, which are only warranted when the evidence shows that a defendant acted

“with intentional malice” or that its conduct was “particularly egregious.” Rosenberg v.

DVI Receivables, XIV, LLC, No. 12-22275-CIV, 2014 WL 4810348, at *6 (S.D. Fla.

Sept. 29, 2014), rev’d on other grounds, 818 F.3d 1283. In light of U.S. Bank’s conduct

                                              6
and the equitable principles embodied in § 303(i), we cannot conclude that the District

Court abused its discretion by denying U.S. Bank the equitable remedy of setoff.

                                           III.

      For the foregoing reasons, we affirm the order of the District Court.

                                            7